The Minister for Finance was in possession.
Wealth Tax Bill, 1975: Report Stage (Resumed).
Debate resumed on amendment No. 10:
In page 7, between lines 33 and 34, to insert the following:—
(4) Where it is shown to the satisfaction of the Commissioners that property comprised in a discretionary trust on the 5th day of April, 1975, was transferred to an individual on or before the 4th day of April, 1976, that property shall be deemed to be the property to which the individual was entitled in possession on the 5th day of April, 1975, and section 3 shall, in lieu of subsection (1), apply to such property.—(Deputy Colley.)
I thought I was but perhaps I am wrong.
I will hand over to Deputy Colley, as a gesture of goodwill.
The Minister's consideration is very touching. The Minister said, when speaking on this amendment, that the suggestion made by me that he was introducing the wealth tax a year earlier than indicated in the White Paper was nonsense. I regret that the Minister said that because we had a lengthy discussion on this very point on an earlier amendment. At that time the Minister for Lands was deputising for the Minister for Finance in regard to wealth tax. I understand why this has to happen although I suggest it is one of the consequences of bringing the wealth tax in a year earlier than was originally indicated. Because of this, what I may call boxing and coxing between the two Ministers, we spent considerable time in dealing with this point. The Minister for Finance did not have the opportunity of hearing this discussion. I doubt if having heard the discussion he would say with quite such confidence that this suggestion was nonsense.
I do not want to go over all of the ground again, but in view of what the Minister said I think it is necessary to briefly draw his attention to page 45 of the White Paper on capital taxation issued by the Minister for Finance on the 28th February, 1974. In paragraph 93 on page 45 it states:
The wealth of the taxpayer would be valued on, say, the last day of the tax year, at present the 5th April.
On page 60 of the White Paper under the heading "Annual Wealth Tax" it says:
The date of commencement will be 6th April, 1975.
That sentence occurs in a paragraph at the end of the White Paper which is headed Introduction of New Taxes. It deals with the various taxes proposed—capital gains tax, gift tax, inheritance tax and wealth tax, indicating when each of them would commence. The significant thing is that the date in each case, other than the wealth tax, is a date before the tax year 1975-76. After the sentence which I have read out: Annual Wealth Tax: The date of commencement will be 6 April, 1975, there occurs the following:
The new system of capital taxation will, therefore, be fully operative from the tax year 1975-76.
If the wealth tax were to operate as indicated in the Bill on the 5th of April, 1975, that sentence would read:
The new system of capital taxation will, therefore, be fully operative from the tax year 1974-75.
But that is not what is says. It says 1975-76 and it says the commencement will be the 6th of April, 1975, having indicated earlier that the likely valuation date would be the 5th of April. I suggest that there can be no other reasonable reading of what is stated in the White Paper but that it was intended that the first valuation date under the wealth tax legislation would be 5th April, 1976. To say, as the Minister did, that he was pressed to introduce the wealth tax legislation does not, of course, contradict this at all: people were anxious to see the final terms of the Wealth Tax Bill so that they would know where they stood. The passing of the Bill with the first valuation date being 5th April, 1976, as indicated in the White Paper would have been the right course. People would have known where they stood; everybody concerned including the Revenue Commissioners would have known the precise form of the legislation and there would have been a reasonable opportunity to prepare for the operation of the wealth tax. In addition, this House and its staff and its Members would have been spared a number of unnecessarily long sittings and the imposition of a guillotine motion.
However, the Minister decided for whatever reason that, contrary to what he had stated in the White Paper, he would introduce the wealth tax, as I said, a year earlier than indicated in the White Paper. That being so, the reason for this amendment and the following one, No. 11, which I think we are discussing with it, becomes clear because what it seeks to do is to give an opportunity to individuals who would be affected to rearrange their affairs in accordance with the new legislation. Failure to do that is not alone in breach of what was indicated in the White Paper but it is, in effect, a penal provision applying to persons whose property was comprised either in a discretionary trust or in a private, non-trading company. The changeover in the manner in which their property may be held can involve them in legal costs in some cases, in stamp duty and in some cases liability to capital gains tax and gift tax. All of this I would suggest is something that is occurring because, for whatever reason, the Minister and his colleagues decided to introduce the wealth tax a year earlier than they indicated in the White Paper.
I shall not speculate on the reasons for that decision, but the fact is that anybody reading the provisions of the White Paper as I have outlined them could not come to any other conclusion than the one that the wealth tax first valuation date would be 5th April, 1976. That is not what is in the Bill; it says 5th April, 1975. Therefore, the case for this amendment becomes all the stronger.
I have not any great confidence from what the Minister has said that he is even contemplating acceptance of this amendment. That is his prerogative. But I think it is important that it should be demonstrated that the Minister is not doing this blindly, unaware of the consequences; that the consequences have been drawn to his attention in this House and that he is still persisting in refusing to make a provision of the kind suggested in this amendment. It is also important that it should be spelled out in this House, as it has been, precisely what was stated by the Minister in the White Paper and the extent to which he is departing from that in relation to the commencement date for the wealth tax with all the consequences that are flowing from that decision, consequences affecting this House and affecting many people outside this House too.
We have done that in relation to this amendment and so far as we in the Opposition are concerned that is all we can do, but the consequences are consequences not of acts or omissions of the Opposition but of a conscious decision made by the Minister and his colleagues knowing precisely what the consequences would be.
Amendment put and declared lost.
Amendment No. 11 not moved.
I move amendment No. 12:
In page 10, between lines 26 and 27, but in section 6, to insert the following:—
"(6) This section shall not apply to a private non-trading company where all the property, wheresoever situate, to which the company is beneficially entitled in possession consists of stock or shares in a body or bodies corporate other than a body corporate which is a private non-trading company".
There were some amendments made to this section designed to ensure that the treatment provided in the Bill for private non-trading companies would not be applied where the private non-trading company was controlled by a trading company. I think that amendment was properly made having regard to commercial circumstances and the way business is operated here. However, there may be a further loophole of that kind that needs to be covered. That is why I put down this amendment. To illustrate what I have in mind, if one assumes, say, that there are five trading companies owned and operated in effect by the one group of people it is a very common practice, particularly with public companies—but it also applies to private companies—to have a holding company for the purpose of convenience of administration and presentation of accounts. In that holding company would be vested all the shares in the various trading companies. The holding company is, of course, a non-trading company. In the case that we are dealing with here it is a private non-trading company. This is certainly common and in many cases it is good business practice.
I do not think that we ought in this Bill to do anything which would unnecessarily interfere with good business practice. It seems to me that if the Bill is left as it is it could well be that there might be double taxation involved once in the case of the trading company's shares, in the example I have outlined, and then in the case of the holding company and all its assets being taxed as a unit, or at the very least, that the shareholders in the trading company may lose the benefits of thresholds, or indeed one might have both results. But whatever way it works out, it seems to me that the amendment which was made earlier by the Minister designed to take a private non-trading company out of the relevant section where it was controlled by a trading company requires the converse which is proposed in this amendment that is, where a private non-trading company has assets which consist wholly of stocks or shares in a trading company, then that the same approach should be made and that the private non-trading company should be taken out of the relevant section and should be dealt with in the same way as a trading company is dealt with. I hope the Minister will agree that this amendment is necessary or be able to demonstrate that it is not necessary because the effect of the provisions of the Bill will be that a private, non-trading company in circumstances similar to those outlined will not be subjected to the treatment laid down in the Bill in general for private, non-trading companies.
However, as the Bill stands, I cannot see that it provides accordingly. If the Minister can demonstrate to the contrary I will be quite satisfied with that, but, if not, I hope he will find it possible to accept this amendment.
Section 6 makes a private non-trading company liable as a taxable entity with the result that the property of the company is chargeable to wealth tax. The assets of the company are liable to tax, and if these assets are eligible for certain exemptions and reliefs they get the benefit of those exemptions and reliefs. The Deputy's amendment proposes that the section should not apply to a private non-trading company, all of whose assets consist of stocks and shares in companies other than private, non-trading companies.
Under section 7, subsection (1) (e) shares of a private, non-trading company which have borne tax are exempt from wealth tax. The practical effect of Deputy Colley's amendment therefore would be that any private non-trading company whose assets consist exclusively of stocks and shares would not be liable as a taxable entity irrespective of whether the shares were Irish or foreign. I regret that the amendment is not acceptable for the following reasons. First of all, for the effective administration of the tax it has been found necessary to make private non-trading companies and discretionary trusts liable as entities. Secondly, granted the necessity for this approach—and I think it cannot seriously be disputed—there are no grounds for the global exemption of property, such as stocks and shares alone from the tax while in the hands of a private non-trading company. Shares which are held by such companies in other private non-trading companies are exempted to avoid an element of double taxation since the latter are themselves liable to tax. The proposal which is confined to cases where all the assets are shares in companies which are not private non-trading companies would be inequitable in cases where, say, 80 per cent of the assets consisted of such shares. The proposal would——
Could the Minister repeat that again?
If I understand the Deputy's amendment correctly he is dealing with companies where all the property is held in stocks and shares. It would be difficult to say that it should apply in cases where all the assets of the company are in shares but not to a case where 99 per cent of them were in shares.
No, it was designed to prevent evasions.
I think if the principle is to be accepted it would have to be extended to meet cases where a large proportion is held in such shares. If it were to be extended it would give rise to difficult problems as to apportionment. Acceptance of the amendment would involve the valuation of shares in a private non-trading company. It would thus revive all those tax mitigation problems and administrative difficulties that we have sought to avoid by making the private non-trading company a taxable entity.
Before the Minister sits down could I ask him in the case I have outlined, say, foreign trading companies, in which all the shares are held in a holding company, how would the tax be applied to such an operation? Would it be applied to the shareholders in the trading company or would it be applied to the private, non-trading company as an entity. And then all the shares would be vested in the non-trading company, the holding company? So there would not be shareholders to tax in that sense.
If the shares are held by the holding company, then the holding company would be liable to tax. The shareholders would not, as individuals, be liable to tax. There would be no double taxation.
In either case?
No.
The trading companies are the holding companies.
In that case would the holding company be taxed as an entity without any threshold?
Yes, because it is the owner of the shares.
(Dublin Central): And there would be no threshold allowed to the trading company?
No. We have explained that a private non-trading company is a taxable entity and will not enjoy thresholds. If they did enjoy thresholds there would be a multiplicity of private, non-trading companies created, each of which would have a threshold and the consequence of which would be the avoidance of tax. We must not open that loophole.
I do not quite follow the Minister. If a number of non-trading companies were formed, in the ordinary course of events would not the holders of such shares in companies be liable for tax?
Yes, but in the case stated here the shareholders are shareholders in a company which is the holding company. And the holders of shares in a holding company would not themselves be liable to tax on such shares.
In a non-trading company?
Yes.
They would not be taxable.
No. The non-trading company itself would be taxed but the holders would not be taxed on their shares in such holding company.
I can understand that, but it seems to me that that would lead to the dissolution of these non-trading companies. If the benefit of the threshold was not available what is the point of this? I cannot see where evasion can come in in creating non-trading companies for the purpose of acquiring other companies. It seems that the principle should be followed through and that the actual owners of the shares in a non-trading company are the people who should be directly taxable on their holdings rather than the company. I cannot see the reason why the Minister is making this distinction between the shareholders in a trading company who would be directly liable for the shares they would hold provided that trading company did not belong to a non-trading company. I cannot see why, in the other circumstances, if a non-trading company holds all of the shares in a trading company, or even a part, the ownership of those shares should not be taxable and allowed whatever threshold is involved in their own case whether they are married or single. Perhaps, the Minister has some secret of evasion that I am not aware of.
I have just told the House how easy it would be to set up a multiplicity of companies. If the companies were to enjoy thresholds they could set up a multiplicity of companies which would enjoy the thresholds.
They would all have to be trading companies, would they not, the shareholders of which at present enjoy the benefit of the threshold anyway?
Yes, the shareholders of trading companies enjoy individual benefits.
Why should they not get it here? The possibility of evasion is not clear.
I understand the Deputy is suggesting that the owners of the shares of trading companies are not individuals, they are private non-trading holding companies.
Yes, but the shareholders in those private non-trading companies would be treated in the same way as they are treated under subsection (5) in section 6 where the Minister introduced a special amendment to cover the obverse of what is sought in this.
The position is that private non-trading companies owning shares in trading companies would not have a threshold; they would be subject to a wealth tax from the start. The shareholders in those private non-trading companies would not then have the benefit of any threshold through their holding in that trading company. So it would not be the shareholders in the non-trading companies who would be liable to wealth tax, it would be the company. This may not be that undesirable.
If they want their thresholds they will no doubt break up the holding company.
I am not suggesting, Minister, that the private non-trading company should have a threshold. The point Deputy Colley is trying to make is that the holders of shares in a private non-trading company should be treated in the same way as the holders of shares in a trading company.
Where, in fact, that is what they are.
That is the purpose behind Deputy Colley's amendment. I find it difficult to follow why the Minister is not allowing any threshold to private non-trading companies and is charging them. We are not suggesting that he should allow a threshold, we are simply suggesting that the same process of ownership should be followed through in taxing the wealth of shareholders in private non-trading companies.
(Dublin Central): I have tried to clarify in my mind this situation and it is no harm to get my mind clear to make sure we are saying the right thing and not misrepresenting the Minister. The Minister might think we may misrepresent him, but I can assure him we will tell the people exactly what the Bill contains. My view is that the holder of a private trading company holding on behalf of a trading company has no thresholds. Is that covered at all in the Bill? There is no threshold for the non-trading company?
No.
(Dublin Central): Even though he is holding for a trading company? Does the Minister see any merit at all in a non-trading company under any circumstances? I cannot see why the same concession should not be given to a non-trading company holding on behalf of a trading company. They should be allowed thresholds. The Minister thinks there would be a certain amount of evasion here. I have no time for people who use non-trading companies to avoid income tax. In the past these companies were formed specifically for tax avoidance of various descriptions but there are also genuine non-trading companies that should not be put into the same category. We know that top professional people through the years have given advice to companies as regards the tax avoidance system where these non-trading companies were concerned, but there are genuine non-trading companies holding assets on behalf of trading companies that should be taken into consideration here.
That is taken into consideration.
(Dublin Central): Is it fully taken into consideration? This is what I want to clarify in my mind. I know the Minister brought in an amendment for this but is it fully covered in that amendment? Deputy Colley has a doubt about it.
The Minister's amendment covers the private non-trading company which itself is controlled by a trading company. What this is seeking to do is to exempt the private non-trading company whose assets consist solely of a trading company or a number of trading companies. It is the obverse of what is in the Minister's amendment.
I must confess I am mystified at the Minister's rejection of this amendment. He has made it clear that the Bill does not cover the case I am trying to cover. Therefore, what is at issue is, should we make this amendment or should we not? I am mystified because I do not think the Minister has indicated any real fear that this could be exploited by way of avoidance. In fact, I can see no way that it could be. It is so drafted, as the Minister pointed out, as to apply only where all of the assets of the private non-trading company consist of stock or shares in a trading company. It is specifically worded that way so as to prevent any avoidance and to cover genuine cases which exist, and of which the Minister must be aware of, a group of trading companies which, for the purpose of convenience of administration and accounts, have all the shares vested in a holding company. This, as the Minister knows, is a common arrangement. There are good business reasons for it.
I submit to the Minister that it is wrong that this Bill ought to change those structures which exist for good business reasons. This Bill ought not to bring about a change in such a structure unless there is a good reason for it and I do not think there is any good reason. The Minister has made it clear in his amendment, which is now contained in subsection (5) of section 6, that his intention is that where there is a private non-trading company which itself is controlled by a trading company then the restrictions of section 6 do not apply to it. If that is so, and if there is a good reason for that, and there is, why is there not an equally good reason for applying the same treatment where a holding company controls trading companies and nothing else, but it is purely a device for the convenience of administration and accounts in respect of trading companies?
The Minister has made it clear in the amendment to which I have referred to, and generally in the Bill, that in his view the assets of trading companies should be taxed in the hands of the shareholders and if the shareholders are liable then they get the benefit of the thresholds. We are dealing here with a situation in which effectively what is involved is the assets of a trading company. Where the non-trading company comes in is solely as a holding company for administrative convenience but in substance we are dealing with the assets of trading companies. The amendment is seeking to apply in those cases the same treatment as the Minister proposes to apply in the ordinary case of trading companies or in the case, as I have indicated in subsection (5), even where there is a private non-trading company, the Minister has provided in subsection (5) that where that is controlled by a trading company then the trading company procedure, if I may call it that, is applied.
There is no reason that I can see why the same thing should not be done in the case I am talking about. Perhaps I did not make the case clear and the Minister did not understand precisely what I was seeking to do in this amendment because I can see no reason why it should not be done. I can see no possibility of avoidance and I can see considerable difficulty arising for genuine trading operations unless this amendment is made. No good reason other than, possibly, a misunderstanding on the part of the Minister as to what is involved here. I urge the Minister to consider again what is involved in this amendment and whether there is any possibility whatever of avoidance, having regard to the wording of the amendment, whether there is any good reason why the same treatment should not be applied to a private non-trading company which itself is controlled by a trading company as would be applied to a trading company which is controlled by a private non-trading company. Are we not dealing with the same thing? Why should there be any difference in approach?
I am mystified and I suspect it may be due to a misunderstanding that the Minister is taking the line he is. I am urging him, even within the exigencies of the rules of debate on Report Stage, to indicate that he has given some further consideration to the points I am putting forward because I am convinced there is a misunderstanding here in regard to what is involved. I am equally convinced that non-acceptance of the amendment will lead to considerable difficulty for genuine businesses, properly and efficiently conducted, and there is no good reason why such difficulties should be created. There are no good reasons either as regards dangers of avoidance or as regards the principles which the Minister is seeking to apply in the Bill. The amendment is merely applying the same principles as the Minister is applying in virtually the same circumstances. In one case, and the Minister has put this in himself, where the private non-trading company is controlled by a trading company he takes a particular line. I am suggesting he should take the same line where the trading company is controlled by a private non-trading company, with the built-in provisions against avoidance because it applies only where all of the assets consist, in effect, of stocks or shares in a trading company or more than one.
May I put a question to the Minister? Would the object behind what the Minister is saying be a situation where the Commissioners were unable to ascertain who owned the non-trading company?
That problem could arise, but many difficulties arise in relation to apportionment of the shares to individual owners and so forth. The case for a reciprocal arrangement to correspond with what has already been done where a trading company owns a non-trading company is not sound because——
It is the other way around.
The suggestion is that if we have moved in one direction we should move in the opposite direction here. A trading company may hold a private non-trading company but all those assets will be reflected in the share value of the principal trading company eventually and, obviously, in the shares of the individual shareholders. In the case of a private holding company owning a trading company the shareholders of that holding company are themselves private individuals. If they want to get the advantages of the private thresholds which are available, they can easily dissolve the company. It is not necessary for the purpose of good business to have a company owning shares. It is not essential. I know some of these operations existed in the past, but there are many what I might call artificial legal institutions under existing law which will have little relevance under the new law but this does not mean that the present ones have any particular virtue or that there are the same reasons for maintaining them.
Are there not circumstances in which they can be administratively useful for the development of business?
And efficient.
Incidentally, we had many representations on the point on which I put down an amendment, that is, to give an exemption to a private, non-trading company which was wholly owned by a trading company but I received no representations whatsoever to take this reverse step.
It is probable that nobody knew about it.
I have a feeling that the people thought this point was covered by the Minister's amendment. I thought it was, also, until I examined it.
Amendment put.
The Dáil divid ed: Tá, 62; Níl, 70.
Tá
- Allen, Lorcan.
- Andrews, David.
- Barrett, Sylvester.
- Blaney, Neil T.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Calleary, Seán.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Cunningham, Liam.
- Daly, Brendan.
- Dowling, Joe.
- Fahey, Jackie.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Fitzpatrick, Tom. (Dublin Central).
- French, Seán.
- Gallagher, Denis.
- Geoghegan-Quinn, Máire.
- Gibbons, James.
- Gogan, Richard P.
- Haughey, Charles.
- Healy, Augustine A.
- Herbert, Michael.
- Hussey, Thomas.
- Kitt, Michael P.
- Lalor, Patrick J.
- Lemass, Noel T.
- Leonard, James.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Nolan, Thomas.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Níl
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Dick.
- Burke, Joan T.
- Burke, Liam.
- Byrne, Hugh.
- Clinton, Mark A.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Costello, Declan.
- Coughlan, Stephen.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Desmond, Eileen.
- Dockrell, Henry P.
- Dockrell, Maurice.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Finn, Martin.
- Fitzpatrick, Tom. (Cavan).
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Governey, Desmond.
- Griffin, Brendan.
- Harte, Patrick D.
- Hegarty, Patrick.
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Kavanagh, Liam.
- Keating, Justin.
- Kelly, John.
- Kenny, Henry.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McDonald, Charles B.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Donnell, Tom.
- O'Leary, Michael.
- O'Sullivan, John L.
- Pattison, Seamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Staunton, Myles.
- Taylor, Frank.
- Thornley, David.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Tellers: Tá, Deputies Lalor and Browne; Níl, Deputies Kelly and B. Desmond.
Amendment declared lost.
Debate adjourned.