I want to assure Deputy de Valera that this has no meaning other than a Minister of State as a corporation sole. It would not mean a company which was under the control of a Minister as a person.
Private Members' Business. - Wealth Tax Bill, 1975: Committee Stage (Resumed).
Debate resumed on amendment No. 7:
In page 9, subsection (3), after line 1, to insert "but does not include—
(i) a body corporate (other than a company within the meaning of section 2 of the Companies Act, 1963) established by or under an Act of the Oireachtas, or
(ii) a company within the meaning of section 2 of the Companies Act, 1963, which is under the control of a Minister of State,".
—(Minister for Finance.)
I know that is the intention.
Precedent is a very good thing to respect and I would point to the precedent in the Finance Act, 1948, where Ministers of State were declared to be exempt from stamp duty. To the knowledge of the Revenue Commissioners, it has not been used by any person who was Minister of State and if they ever tried it, I think the document in question would be declared to be invalid.
I am sure it would.
The main point being made this morning on amendment No. 7 was that made by Deputy Colley in relation to his query to the Minister in regard to competition by what are described as non-trading but, basically, by semi-State bodies with other ordinary trading organisations. At that stage the Minister for Foreign Affairs came in and we believe he went a little bit off the track; he seemed to be under the impression that, if it was a semi-State body, it did not matter whether or not there was an extra charge in relation to wealth tax. What Deputy Colley was arguing was that wealth tax could affect the private company or corporation. The Minister for Foreign Affairs maintained that it did not matter whether it did or not because, if you were a semi-State body, then whether you charged or did not charge a semi-State body made no difference because you would be collecting the money and giving it back. We pointed out to the Minister for Foreign Affairs that his approach was wrong, that semi-State bodies have to show a balance. They have to balance their accounts in the same way as any other corporation. If there was a charge made in the case of a semi-State body which was in effect to some of its operations in a trading organisation competing with private enterprise that charge would be reflected in its accounts and would either be part of the charge on any surplus it had or would have to become part of increasing subsidy if it was a semi-State body relying on a State subsidy.
On a point of order, and with respect to Deputy Brugha, I would like to point out that the section we seek to amend here is not dealing with trading bodies, State or non-State; it is dealing with non-trading companies. Therefore, no question of competition between the public and the private sector arises.
Does not (ii) include——
A non-trading State organisation is not taxed merely because it is under the control of the Minister for Finance who holds the shares on behalf of the public. Everybody on both sides of the House, as Deputy Brugha has acknowledged, has gone a bit off the rails and I do not think we should continue off the rails.
It is not quite that clear.
Under (ii), certain State bodies were mentioned here, such as Bord na Móna. Is that not correct?
I think the Minister may have put us off the rails at the beginning.
I accept that, when I gave illustrations of bodies corporate, which are not incorporated under the Companies Act, I referred to bodies such as the ESB and Bord na Móna which are corporate bodies as a result of a specific Act of this House as distinct from the Companies Act but that is the only connection between those for the purpose of illustration I gave.
On a point of order, could I suggest on the net point that was at issue between the Minister for Foreign Affairs and ourselves, to dispose of that fairly quickly without undue difficulty, the question of whether or not this amendment relates solely to non-trading companies is a matter which needs a little further clarification. I know the Minister will say it is in a section which deals only with that, but I would put the other side of the coin: what is the position of State trading companies? Under what section can we deal with this point?
Trading companies whether owned by the State or by the private sector will not be taxed, but the shares in such companies will be taxable if held by persons who are above the exempted thresholds.
Under what section can we raise the question of whether or not the State as a shareholder should be taxed?
It is not for me to direct either the Opposition or the Chair as to what might be relevant but it seems to me that you could argue it under section 9, which deals with shares in private trading companies and so the matter might appropriately be discussed under section 9.
There is the difficulty in the amendment which the Minister is dealing with at the moment that it includes both trading and non-trading companies.
We are dealing with this definition in this section, the section which deals with non-trading companies.
But does the Minister appreciate that he is including in that companies which are, in fact, trading companies?
That probably is the point at which we got confused. Perhaps we should include trading companies in this section.
Can we take it that no State company which is trading, or in part trading, is included in this amendment?
Yes.
No. we cannot take that.
You can so far as we are dealing here with non-trading companies.
It is the private non-trading company as defined.
There is a definition in the beginning of a private non-trading company. It refers us to subsection (3) of section 6. Subsection (6): "A company is a body corporate..." and so on. The Minister is providing an amendment to that which, on its face, includes both trading and non-trading companies. It is difficult to say with certainly, because it has been moved to this section, that it automatically excludes State trading companies.
All we are doing is ensuring that a State non-trading company is not a taxable entity in itself.
That is the intention.
(Dublin Central): Could the Minister mention one State non-trading company which might be of help to us?
Aer Rianta.
That might be a bad example. Surely that is trading.
It is only a holding company.
It is more than a holding company.
It would come within the definition of a non-trading company.
Would it? It carries on certain trades.
(Dublin Central): Is that the only State non-trading company we are talking about? In my opinion any company that trades should not come under this section.
On foot of subsection (3) of section 6, having stated what a company is, we state what is a private non-trading company. It means a company and for "company" we go back to one of the bodies corporate in subsection (3) whose income in the 12 months preceding the valuation date consisted wholly or mainly of investment income, that is to say, income which if the company were an individual would not be earned income, and so on. What we are saying here is that the private non-trading company is one of those companies but it does not include these particular State companies which would otherwise be included merely because the Minister for Finance, as the public trustee, as it were, holds the shares on behalf of the public.
That can be a company engaged in trading. Is not paragraph (ii) referring to a rather wide number of companies under the Companies Act, 1963?
That is right.
Would it be true to say that subsection (3), in paragraph (a), (b) and (c), defines "company" for the purpose of the section and then the paragraph at the bottom defines a private non-trading company. The Minister proposes to exclude from the definition of "company". State companies of all kinds, whether trading or non-trading.
That is the intention?
Yes.
The Minister will agree that it is somewhat confusing to do it in this way, in the sense that this section is intended to be dealing only with non-trading companies.
By definition the trading company, whether State or non-State, does not and cannot be included under the description of "company" for the purpose of this section. We need not exclude it.
What is not obvious is, where is it possible to discuss the rightness or wrongness of excluding the shareholders in a State trading company? Is not the effect of the Minister's amendment to exclude shareholders in a State trading company from liability?
Mr. Ryan
No.
(Dublin Central): When we come to section 7 dealing with exemptions, will it come under that?
Section 9.
I doubt that. That is the market value of shares in a private trading company.
Would it be relevant to that? The Deputy is making the point that there is some discrimination between State trading companies and private trading companies.
If we can get agreement in the House that it can be raised on that section, we do not wish to pursue that particular point on this one.
There will be no objection on this side of the House to its discussion then.
Very briefly I want to deal with the confusion that arose today with the Minister for Foreign Affairs, by giving what I hope is a clear example of what we had in mind. If you have a private trading company—private in the sense of not being a publicly quoted company— valued at £X, and if you have a State trading company with assets valued at £X, and if the liability on the private trading company for wealth tax in a year is £Y, there is no doubt that in the vast majority of cases of that kind £Y has got to come from the earnings of the private company although, in theory, under the Bill, it will come from the individual shareholders.
The liability is on the shareholders.
The liability is on the shareholders but, in practice, it will come in that case from the earnings of the company. Therefore, the earnings of the company will be reduced by £Y. If the State, as shareholder, is not liable, then in the case of the State trading company, it will not have the liability for £Y and will be that much better off. If, on the other hand, it were liable, the only way it could be made up would be by the Exchequer increasing its investment or subvention to that company, which would be a separate transaction and could be gauged, whereas not to do that means a hidden additional subvention to the State company. That is the net point we were trying to make.
I will give the answer when we come to the section.
Amendment agreed to.
I move amendment No. 8:
In page 9, subsection (3), line 50, after "1967," to insert—
"and whose property on that date consisted wholly or mainly of property from which that investment income is derived,".
The test applied in section 6 in determining whether a company is trading or non-trading is the nature of its income. If it is wholly or mainly investment income, the company is regarded as non-trading. The period over which the income was looked at was 12 months.
However, it has been pointed out that if a genuine trading company suffered a loss in its trading activities in the period prior to a valuation date and during that period had some small investment income, for example, from money on deposit or a small reserve held in securities, its position would be that its income was mainly investment income. In these circumstances a private trading company could find itself liable as a non-trading company through the fortuitous circumstance of an unexpected loss in trading. This was never our intention. It is clear, therefore, that a test which is concerned solely with income is inadequate as it can give undesired results when a trading company hits a bad patch. To rectify the position it is, therefore, proposed to take account of the property which the company holds. The test of whether a company is a private non-trading company will now be determined by two factors.
Firstly, was the income in the 12 months prior to the valuation date wholly or mainly invested income, and secondly, was the property of the company on that date wholly or mainly property from which that invested income was derived? The test should ensure that a genuine trading company should not, through a fortuitous loss in its trading operations in a given year, find itself in the position of being treated as a private non-trading company.
This is a point I raised on Second Stage. The Minister's amendment meets it fully as far as I can see and, for that reason, of course, we support it. Without it we would have had grave anomalies and indeed injustices. Perhaps I may be forgiven in the context of the discussion we had earlier this evening for pointing out that this is another example of the benefits which can accrue from a proper detailed examination of a Bill of this kind. The suggestions made from these benches, in some cases at least, deserve to be listened to and incorporated in the Bill. It is desirable that full opportunity should be given for such suggestions to be made from this side of the House.
Amendment agreed to.
I move amendment No. 9:
In page 10, after line 10, to insert the following subsection:
(5) This section shall not apply to a private non-trading company of which a body corporate which is not a private non-trading company has control and, for the purposes of this subsection, where a body corporate (in this subsection referred to as the first body corporate) has control of a second body corporate and the second body corporate has control of a private non-trading company, the first body corporate shall be deemed to have control of the private non-trading company and if a third body corporate has control of the first body corporate, the third body corporate shall be deemed to have control of the private non-trading company, and so on.
Public companies, both Irish and foreign, often find it necessary for fiscal, commercial or other reasons to interpose holding companies between themselves and their trading companies. These holding companies collect, invest and govern the dividends from the trading companies. These holding companies are owned entirely by the parent public company. As a company is a legal person the holding company is controlled by one person, the parent company, and its income is investment income, being the income of shares in a trading company. The holding company thus becomes a private non-trading company within the meaning of the section. It is often found that there is not only one but several holding companies between the parent company and the lowest subsidiary company.
It was not the intention of the section as drafted to make holding companies which are controlled by public companies liable as entities. That this, however, was the effect of the section was pointed out in a number of representations I received, the reason being that a public company is a legal "person" and that, therefore, a holding company in those circumstances is under the control of "not more than ‘five persons'." For other reasons, it was not open to us to use the word "individuals".
The proposed amendment rectifies this situation. However, it goes even further. It takes out of the charge for tax any private non-trading company which is controlled by any body corporate which is not a private non-trading company.
Therefore, a private non-trading company is not a taxable entity if it is controlled:
(i) by a trading company whether public or private or by
(ii) any public company whether trading or non-trading,
(iii) any private company which is not a private non-trading company.
This is also a point we brought up on the Second Stage and I am glad to see the Minister is tackling it. However, in this case I cannot give the amendment my full support for a few reasons which I will outline. The basic one is that the approach in the Bill to this section is, in my opinion, wrong. I believe that the liability should attach in a uniform way throughout the Bill and that we are getting into a morass by approaching it in the way the section does. Given the approach in the section, the Minister's amendment is the right one, but it produces a morass. I suspect this particular amendment may be providing an enormous loophole for evasion of wealth tax. I will develop that later. It also has relevance to a point we discussed at some length in earlier sections with regard to the effect on private investment.
The first point I should like to put to the Minister is a drafting one. In the second line of the amendment there is reference to a:
body corporate which is not a private non-trading company.
There are two other references later on to a body corporate but the other references do not incorporate the phrase "which is not a private non-trading company". It may be that the Minister will say it is inferred but it is not clear to me that it is inferred. If it is not, I think the Minister will agree that it should be. In other words, that where there is a reference anywhere in this amendment to a body corporate what is meant is a body corporate which is not a private non-trading company. It is not clear to me that that meaning is carried through, and if it is not I think the Minister would want to ensure that it was carried through.
At this hour I would not be able to give a satisfactory dissertation on the particular meaning of "body corporate" every time it is mentioned in the subsection. Perhaps we could agree that we have arrived at the appropriate hour to report progress and take it up in the morning.
Progress reported; Committee to sit again.
The Dáil adjourned at 10.30 p.m. until 10.30 a.m. on Thursday, 10th July, 1975.