Skip to main content
Normal View

Dáil Éireann debate -
Wednesday, 12 May 1976

Vol. 290 No. 8

Finance Bill, 1976: Committee Stage (Resumed).

Question again proposed: "That section 9 stand part of the Bill."

I am not going to delay either the House or the Minister on this section. Of course, the Minister has a point when he says this is mentioned in the budget. However, he will appreciate that my protest on the form of the section is meant to be part of a recurring one on my part against legislation by reference where there is something substantive, even if it is only a continuation. In this case the Minister has a good point in saying that he did mention in the budget what the facts would be but, unfortunately, the Acts are the law and it is highly desirable that the content of a section wherever possible should be made clear.

Section 9 stands out in sharp contrast with section 10 where, of course, it is necessary to set out the table, but if section 9 were so worded that the rate would appear on the face of it, then section 10 has all the greater meaning. Persons who have to advert to legislation of this nature, after all, even if the Minister did say it on the budget, do not all remember everything that the Minister is saying and whether it is management in business, trade union or other organisations which have an interest in the matter, or whether it is even these people who have to transmit the information either to specific groups or to the public at large, for the sake of all these people it would be highly desirable that legislation involving something substantive like this should show on the face of it what it is.

I will not add any more to this. I can see that in this case the Minister has a stronger answer to me than he might have in some other cases but, nevertheless, the residue remains.

I did mention that the Deputy made a call to me. I mention that in order to help understanding of the Bill. In future Finance Bills, I was proposing to put in descriptive clauses, either in the marginal note or in the text of the Bill. This would come in for Report Stage probably but I quite agree with the Deputy. It would be much better if one says one is amending section such-and-such of some Bill that there would be a description. The description here, for instance, would be a continuance of the 10 per cent surcharge or something of that nature.

Question put and agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."

This section gives effect to the increases in personal allowances set out in the budget. The increased allowances are set out in the table in the section. The consequential textual amendments to the appropriate sections of the Income Tax Acts are contained in Part I of the First Schedule.

I take it that the only increases are those specified in the section. For instance, it is not proposed to increase the age allowance since it does not appear in the section.

No, there is no variation there.

I urge the Minister that in the case of the age allowance there is a very good reason why it should be increased, having regard to the position of pensioners from the public service as an example—there are many other people affected. They thought they had achieved parity, but in recent years because of the nature of the agreements made for increases in pay some of which have occurred on a number of occasions during a year, the pensioners are further away from parity than they were before. The combination of this factor and the effect of the later section which would bring them into the PAYE system is going to be quite substantial for a number of them. The best way to deal with it without the Minister being committed to an across-the-board benefit would be by increasing the age allowance. I, therefore, urge the Minister before this measure is enacted to give further thought to increasing the age allowance for that reason.

Apart from that, I reiterate what I had to say on an earlier section, that, despite the fact that there have been fairly frequent adjustments of the income tax allowances in the last few years, nevertheless taxpayers are in real terms worse off and have been worse off at all times under this Government than they were under the 1972 Finance Act. This, of course, is because the adjustments that have been made have not nearly kept pace with inflation. In the light of information published today in a report of the OECD that we are at the head of the international league of all developed countries for inflation so far this year, 1976, with Turkey ranking only behind us and Portugal behind that, the increases proposed in these allowances can only be described as ludicrous and a gesture but making very little real difference to taxpayers.

I am well aware of the difficulties and the enormous cost involved in making adjustments of this kind. I do not wish to develop the theme as to why so much larger increases are necessary and the causes of the enormous inflation to which we are subjected, so much higher than any other country facing the same problems of international recession and energy crisis as we are. I do not wish to go into that in detail, but in the light of the fact, undisputed, that we are at the head of the international inflation league, I suggest that these proposed increases in allowances are ludicrous. We have now reached a stage where the level of taxation and in particular the level of personal taxation is acting as a very serious disincentive to work. This is true not only at the top of the scale where we have the highest rate of taxation in Europe but it is also true in the middle of the scale and the bottom of the scale. All of us have had an unpalatable amount of experience of people refusing to take on overtime because they feel it simply is not worthwhile. I know this was true in the past but it has now become widespread wherever overtime is available and is optional. This is a very serious situation for our whole economy. I do not suggest that there is an easy solution to the problem, given the present state of our Exchequer, the present state of revenue and the present state of expenditure. I will not go into the reasons that have led to that level of expenditure and level of income for the Exchequer.

We are now in a vicious circle whereby our economy instead of growing is contracting or at the very best is giving zero growth and the demands are increasing all the time. In response to these demands the Government are imposing more and more taxation and as a direct consequence of that the growth which we should be getting is not forthcoming, so we have a situation of a contracting pool of resources with an increasing level of demand on it. This situation will get worse and worse at an accelerating rate as long as we continue on the road on which we are going. It is pretty clear by now that this Minister and this Government have no intention, or even if they have the intention, have not got the know-how to bring about a reversal of the situation. It is unfortunate for everybody that that should be so. Allowing for the various steps that have to be taken to get our economy moving, as far as this party are concerned, we have no doubt that the level of taxation is too high and is bringing about a serious disincentive. Consequently when we return to office we will certainly be lowering the level of taxation, including personal taxation.

Changes have been made in the British tax system in respect of the proposed pay deal in Britain. Even after those changes the personal tax rates in this country up to salary scale of £5,000 are less than in Britain. It might be worthwhile for people to think on that, because there is a natural tendency always to look for more and more. It is interesting that our tax rates for the overwhelming majority of people are less than what applies just across the water. Tax concessions this year work out at about £18 million on an annual basis, and that at a time of very severe budgetary constraints. I can understand Deputy Colley making promises as to what he will do when Fianna Fáil get back to power. It is so far away that it is not difficult to make promises. For any person with any expectation of being in office in this country for the next ten years, making promises as glibly as Deputy Colley, only represents a certain amount of irresponsibility, or if not that, a total ignorance of the financial circumstances of this country. I know Deputy Colley is not ignorant as to the financial circumstances of this country because he so frequently makes reference to them, but he simly cannot perform the miracle of slashing taxes and at the same time eliminate deficits and produce all the other goodies that some Fianna Fáil spokesmen from time to time suggest can be produced, without increasing Government expenditure. If you increase expenditure you cannot cut taxes. We have, at a time of unprecedented budgetary difficulties in Ireland, maintained reductions in income tax levels and I think we are entitled to say that it is not an inconsiderable achievement.

I made that promise in the full consciousness that this party will be in office after the next general election.

Then the Deputy is being irresponsible.

What the Minister has just said is an example of how the Minister uses words from time to time. Deputy Colley in referring to the high level of tax said that when this party are elected to Government there will be a reduction in these taxes. The Minister in attacking Deputy Colley on that referred to the slashing of taxes. That discussion merely illustrates in part at least the difference between the attitude on this side of the House and the attitude on the Minister's side. When we talk about the high level of taxation we are talking not alone of the interests of the taxpayer, which is, if you like, a voting interest, we are talking about the fact that the high level of taxation acts as a disincentive to the creation of wealth. We have spent time on that before but it is a fundamental difference between the approach of this side of the House and the Minister's approach. It lay behind a good deal of argument that went on this monring and yesterday. The Minister suggested that Deputy de Valera was simply talking about professionals and nothing else, whereas Deputy de Valera was talking about the effect of the tax system on the individual trader as against the company who have a slight advantage over the individual. This does not relate directly to section 10.

Deputy Colley has illustrated something which is important at present. It has become obvious over the last two years that the greatest burden that can be placed on any small economy is the burden of increasing inflation. If anything has made the name of the tax collector, Seán P. Belford appear in the Gazette more often in recent times it is probably the effect of inflation on the small entre-preneur in relation to the liquidity demand on the increasing costs of the stocks that are necessary to maintain any sort of industry or business.

Deputy Colley has highlighted the difference in this table. For a married woman it works out at a little under 10 per cent, for a single person at about 8 per cent, for a widowed person at about 8 per cent and for an additional child at under 5 per cent. If that were being done in a time of normal inflation it would be a considerable advance and I for one would be congratulating the Minister but it happens at a time when inflation during the period referred to is well over double the additional amounts allowed. In a sense it is a reflection on the Government that each person in this category has lost way to the tune of more than 10 per cent over the 12-month period and the Minister has, in effect, made up pretty nearly half of that loss and that is as far as he has gone. What the Minister is not coping with, and the table illustrates this, is the effect that inflation is having on the ordinary person and on the expansion of trade which is so badly needed.

I am afraid that the Minister's increase of allowances here is only a partial compensation, as Deputy Brugha has said. This means that everything Deputy Brugha has said is correct, that we are continuing, and the policy of this Bill continues, to increase the burden of taxation. The Minister talked about Deputy Colley's irresponsible approach in connection with earlier remarks. I wonder did the Minister see a repeat of a very interesting "7 Days" programme last night and I wonder did he register the fact corroborated there that the fundamental defect of this Government or of any Government who behave as they do is that they are not taking positive action and are simply trying to find money? As Deputy Brugha has just said, there is a complete disincentive. Money is available in the banks for people to take and it is not being taken. I do not think it would be right for me to proceed further in general terms here but this section will do very little to improve the situation. It is—and one is glad to see it there—some amelioration for personal taxpayers but when one goes back to the root of the problem the difficulties remain very much the same.

There are significant omissions here as Deputy Colley has pointed out. However, I suppose this is better than nothing. The individual taxpayer, when it comes to his own tax computation, will wonder just what the benefit is. The individual taxpayer, through inflation and because the Government have been unable to control the economy and things have run riot, finds himself going into higher income brackets and being all the worse off all the time. He goes into higher income levels and attracts higher tax. If a number of these people make a comparison between their position a couple of years ago— irrespective of the schedule or the provisions under which they are paying tax—and the reliefs granted, will they find themselves very much better off? Granted, there will be an area of maximum benefit from these reliefs, which will come in in respect of people who heretofore were virtually exempt from tax but the large number of people in the community who because of inflation and the devaluation of our currency that that is equivalent to are now in tax brackets and are moving into tax brackets in such a way that it will be a matter for each taxpayer to assess how much better off he is.

Question put and agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."

This section provides for the furnishing of a separate return of income by a married woman in respect of her own income. The provision has been made in response to a request by married women who wish to make returns of their own income rather than be required to have that income included in their husbands' returns, particularly in cases where the husband has no income.

The opportunity is also being taken of correcting a drafting flaw in the relevant section. There is a reference to "period" in two places in the section which in one place means the period within which the return is to be made and in the other means the period for which the profits or gains are to be returned. Subsection (5) of the section clarifies this.

There are approximately 100,000 working wives in receipt of the working wife's allowance. An estimated 20,000 other wives are in receipt of investment income which in the majority of cases is relatively small. Therefore, an estimated 120,000 wives have an independent source of income. Separate assessment is at present claimed in about 1,500 of these cases.

Could I ask the Minister if he would clarify the position arising in this regard? He will recall that in relation to section 4, which is amending section 197 of the 1967 Act, I asked him to confirm and he did confirm that a married woman is entitled if she so wishes to apply and to be separately assessed from her husband. What is the connection in this context between section 197 and section 169 of the Income Tax Act, 1967?

There is, in fact, no connection at all. Section 169 deals with completion of returns and section 192 lays down the general rules as to tax on husbands and wives. We now have the ridiculous position in which a husband with no income is nevertheless required to make a return on his wife's income and that, technically speaking, cannot be avoided, even if the wife makes a return. We are providing here that where the wife makes a return that will satisfy the requirement in relation to getting particulars of the income of husbands and wives which, of course, are connected.

Is it possible for a married woman who is a working wife in the sense that she is working outside the home not alone to get a separate assessment but to deal directly with the inspector without any intervention on the part of her husband so that there is no disclosure to her husband unless she chooses that there should be?

A husband would not necessarily know his wife's income but he might be able to deduce it from his notice of assessment.

But is it possible or will it be possible when this Bill is enacted for a wife to deal directly with the inspector of taxes without any intervention on the part of the husband, in other words, that she would be treated as a separate individual?

That is so.

There is the possibility that I have missed some amendment in a later Act but as I read the law, separate assessment is empowered by section 197 of the Income Tax Act, 1967. In that section there is provision for separate assessment. However, section 169 of that Act, the section to which this amendment refers, deals with the making of returns. I do not know if this is an amendment in so far as it appears to be a continuing provision. If I am right so far, apart from effecting what the Minister calls a drafting amendment, I am not clear whether the section affects the substantive provision. Under section 197 of the 1967 Act a wife could have a separate assessment so long as due notice was given.

This is so.

I am not sure as to how the allowances are calculated but does separate assessment render the married woman a single woman for tax purposes? If there is a linkage arising from the conjugal state, it would seem to be difficult for tax purposes for either party to be totally disentangled. Is there anything in this section that affects that situation? It would be simple if section 197 provided for a married woman having two choices: either she can be linked with her husband who will be assessable for all income and will receive all the allowances or she is assessed separately in which case it would appear that the simplicity disappears unless she is to be treated as a married woman in which case her income is assessed separately but without allowances in respect of the marriage being available. I understand that is not the case. The Minister would be within his rights in telling me to do my homework but the problem is in getting the material to allow one to complete one's homework on this complicated legislation. Consequently, I must put myself at the mercy of the Minister and ask him if he is effecting any change here other than that to which he has referred and, in particular, if there is any change in regard to the allowances available or in regard to the notional aggregation of income that must take place for the purposes of these allowances.

Anyone with an individual problem would have to seek individual advice, whether from the relevant inspector or someone else but it would be helpful for the House to know whether any change is being effected by the section. Paradoxically, this section refers to a section in the 1967 Act which on cursory examination does not appear to mention a married woman at all or to refer to the married state. This is because it deals with returns, whereas on the other hand the whole substance of the section deals with the case for a married woman as provided for in section 197 of the other Act but which is not mentioned here. Therefore, I do not think I am being unreasonable or unduly stupid in displaying confusion.

We are dealing here only with returns by married women. Allowances and so on remain aggregated and these can be apportioned if the parties are assessed separately. Under existing law, the husband has an obligation to make a return of the wife's income even if he has no income of his own because her income is deemed to be part of his income. What will happen in future is that a husband will notify the inspector that his wife has an income and the inspector will then require the wife to complete a return. The commissioners will accept the declarations from both parties and will make the necessary assessments but if the wife fails to make a return the inspector will be able to require the husband to make the return. As Deputy de Valera anticipates, we must ensure that the information is collected, that there is no weakening of the system of collection but at the same time we can accede to the representations that have been made regarding the enabling of a wife to make a return of her own without having to submit all the details to her husband.

We all appreciate the situation in which there are working wives. Supposing the wife does not tell her husband, what will happen? That seems to me to be putting the husband in an impossible position. I begin to think we would want Men's Lib. as well as Women's Lib. Supposing she does not, and it is confidential, then the husband and the wife, or one of them, will be assessed in a mysterious manner and they can never understand or appeal against it. In some other measure in regard to appeals it is provided that the grounds must be stated. If a husband gets an assessment which is in part based on information to which he has not got access, how can he give his grounds for appealing? We are getting more and more in the mire in our taxation system and the more we kick and struggle the deeper we get caught.

The Deputy is illustrating a situation which can occur in existing law—a wife withholding information from the husband in regard to income.

I am not in a position to contradict the Minister and I therefore accept what he says. The amendment raises a major problem and is it adequate in all the circumstances or does it do more than it appears to do on the face of it?

Now there is a change in the law, the Revenue Commissioners can pursue the wife for her failure to discharge the duty imposed on her, and a penalty can be applied to the wife. The law gives the wife the right to make a return and if she fails to make it the Revenue Commissioners may apply the penalty provisions. A wife can hardly expect to be given a right unless in relation to her failure to discharge it a penalty attaches.

I cannot disagree with the Minister. We now know the section also means that any wife who makes a return is fully liable to all the sanctions. Is it not as well that all wives should know their liability— that it is they who will go to jail or go bankrupt rather than the husbands? It is no harm the ladies should know.

The Minister has given one interesting statistic in regard to wives' earnings. He said there are 100,000 wives earning and that 20,000 wives are in receipt of incomes. Could the Minister say how many of these wives have husbands who are not earning? It is an interesting social situation.

I do not have that statistic.

Question put and agreed to.
SECTION 12.

Amendment No. 5 is consequential on amendment No. 4 and by agreement amendments Nos. 4 and 5 may be taken together.

I move amendment No. 4:

In page 9, after line 54, to insert the following subsection:

"(4) A person shall not be entitled to a deduction under this section in respect of an assessment unless he makes a claim before—

(a) the date on which the assessment becomes final and conclusive, or

(b) the expiry of the period of six months beginning with the date of the passing of this Act, whichever is the later."

The purpose of this amendment is to provide a time limit for claims under this section. It provides that in a new subsection (4) a person shall not be entitled to a deduction in respect of an assessment unless he makes a claim before the date on which the assessment becomes final and conclusive, or the expiry of the period of six months beginning with the date of the passing of the Act. Amendment No. 5 is a drafting amendment consequential on the new subsection (4), deleting the existing subsections (2) and (3) and substituting subsections (2), (3) and (4).

I should like to ask whether the period of six months after the passing of the Act is sufficiently long. One aspect is whether a corresponding period given in the previous Act was sufficiently long or whether there is any evidence that people were unaware of the time limit and lost out as a result. Second, this amendment applies to a section which is giving certain reliefs to individuals as distinct from companies as heretofore. It is clear enough that in the case of individuals there is a greater danger that some people might be entitled to this relief but might be unaware of the time limit than is the case in regard to companies where in general one can expect that claims of this kind would be handled by accountants and there is therefore less likelihood of the same percentage of cases being unaware of the limit. Of course the involvement of accountants does not guarantee the claim would be made in time, but they are more likely to be aware of the time limit than individual taxpayers.

I am asking whether the six-months period provided in paragraph (d) in the amendment is sufficiently long to give a reasonable opportunity for the taxpayer concerned to benefit from reliefs given in the section.

I am sure the Deputy would not chastise me for finality in relation to tax matters, particularly where claims arise. The six-months period has been adequate to date. No cases have come to notice where persons entitled to the relief have made late claims. All that is necessary is to make the claim within the time set. Considering that this is a claim being made by persons who are in business, it is not an unduly onerous obligation to put on people to avail themselves of a right to give notice within six months of the passage of the Act. No problems have yet been identified of the nature referred to by Deputy Colley. If they do, we can certainly consider whether or not the period should be extended. But, as it has worked well and the relief has been enjoyed by the people for whom it was intended, I would not see any need to extend the time at this stage.

One can understand what the Minister is doing here. If I understand it correctly, what he is doing is giving six months after the passage of the Act as a period within which to submit the return and the date on which an assessment becomes final and conclusive. That simply means he is giving six months' grace to catch up and thereafter it will depend on the assessment, so that there would be finality.

What puzzles me about this section and section 26 is: what has motivated the Minister in the way this has been presented? As it is extremely difficult to separate the two sections perhaps I might refer briefly to section 26 in relation to this section. Under the Finance Act, 1975 the Minister gave a very important relief to trading companies, companies having trading stocks, in an inflationary situation. If I and my colleagues have been severe on the Minister, as we believe we should be in regard to the burden of taxation and the impact of inflation, here we must be equally objective and allow him credit for having given that substantial relief under section 31 of the 1975 Finance Act. It may well be that, in the circumstances in which that relief was given, there was a certain amount of understandable precipitateness, in the sense that the relief was first notified, made definite and, for a while, made absolute in circumstances of mounting inflation. I am sure that amounted to circumstances of pressure of urgency on the Minister and his advisers.

In this Bill, we are faced with the extension of that benefit, on the one hand, under section 12, to which this amendment relates, and in a later section in the extraordinary amendment to which we shall come—extra-ordinary in that it appears to be almost a Bill in itself. In so amending section 31 of the Act of last year it imports everything of substance that is relevant into section 12 of this Bill. I do not know if my view of the law is correct here but I think probably it is. Part of the explanation may be that section 31 was defective and open to abuse. If so, the Minister will have no difficulty in getting the support of this side of the House in the prevention of abuse. What is more, we will be very easy on him because the reliefs were of substantial benefit. As I said on Second Stage, even if there were abuses, the benefits conferred, from a social and economic point of view, outweighed any damage done.

What disturbs me is that, having brought in a Finance Bill to correct that, we now have amendments of this magnitude. Some explanation should be forthcoming from the Minister. I did mention that a possible contributory cause was urgency; that there was not sufficient time to tie up all the details. If that is advanced as a reason, it is an acceptable one in the circumstances. On top of that, the passage of the Corporation Profits Tax Bill may have been a contributory factor. If the Minister tells me that this Bill had been prepared already, that it could not be delayed and that the uncertainty about the passage of the Corporation Profits Tax Bill was the reason for it, that also I can understand. Nevertheless, it seems difficult to believe there would not be a policy direction of a "take a chance" to the parties concerned, as it was quite obvious that the Minister had, and would have—putting through the Corporation Profits Tax Bill—the command of so many pairs of boots.

The Corporation Profits Tax Bill was not passed by the date of circulation of the Finance Bill.

I know. I do not want to mix up my metaphors altogether: the Minister would need to have large pockets to accommodate all of those boots. Anyway, the Minister had command of the regiment of foot—if I might call it such—that would go into the lobbies behind him.

I would not like to use the boots and agitate the Deputy.

But the Minister uses them every day, not alone here but on the unfortunate taxpayer.

Slippers.

I do not want to put in the boot so let us keep to the section. I can understand that those may have been the reasons. I am asking the Minister, in a sense, are they the whole reasons? When we come to section 26 I will have more specific questions that are relevant. Lest it would appear that I am becoming totally irrelevant I presume it is in order if I do not delay the House afterwards on section 12 itself to talk on the section in connection with the amendment. A very large part of the amendment of section 26—in other words, section 31 as it will be amended —is imported into this. I will take two bites of the cherry if the Chair wishes. I want to keep within the rules of order so far as this is concerned, but it is very difficult to extricate the two. What this amendment really is saying is that a claim under section 31 of the 1975 Finance Act—when amended by this Bill—will be subject to the limitations imposed by this amendment. This amendment places a limitation in time on the operation of section 31 of the 1975 Finance Act, as it will be amended by this Bill. I am quite prepared to speak about the section as a whole. If this is a limitation on the operation of section 31, it means that stocktaking, furnishing of accounts, all of these things, have to be completed within the period concerned and the claim must be made before an assessment becomes final and conclusive.

On section 7 I raised the question of the date that appeared in that section. The Minister very properly told me, and I understood immediately he explained it, that if he did not put in that date, there could be retrospection. I take it something similar is being applied here. If assessments have been finalised, six months' grace is given. If that were not given, where companies would have the benefits in the calendar year 1975, traders would be excluded. The matter can be opened six months after the Act. I suppose that is not unreasonable.

It is important to recognise that section 12 deals with unincorporated bodies and section 31 and section 26 deal with incorporated bodies. They have been separately treated and that is the reason for the two separate sections.

In effect, you are importing one into the other with restrictions.

In this chapter we are dealing with personal income tax.

In the chapter containing section 26 we are dealing with the income tax position and all the taxes associated with corporate bodies. That is why they must be treated separately. All we are doing here is providing a period for making the claim similar to that contained in section 31 and now section 26 of this Bill.

Amendment agreed to.
Question proposed: "That section 12, as amended, stand part of the Bill."

I have already pointed out the element of urgency which probably left the original draft of section 31 of last year's Act imperfect. I mentioned the impact of the corporation profits tax legislation and, I gather, from the Minister's remarks that I am right in my assumptions.

Now we must consider an amended section 31. Although the Minister made the point that this deals with persons, while sections 26 and 31 deal with corporations, the fact is that under the wording of the section these provisions are imported, where relevant and applicable, into this section. Subsection 12 (2) (a) says:

The provisions of section 31 of the Third Schedule to the Finance Act, 1975, other than the excepted provisions, shall with any necessary modifications apply in the case of a person as they apply in the case of a company.

Therefore, the substance of what is in this Bill relating to the amendment of section 31 of the Finance Act also relates to this section and, in particular, will include provisions for claw-back.

The section, as amended, now has subsection (4). Subsection (1) defines an "accounting period" and has a proviso that where accounts have not been made up, the Revenue Commissioners may determine; and it defines a "person". I have already read the operative part, subsection (2) (a). Subsection (2) (b) defines "the excepted provisions". Subsection (3) reads:

Any deduction allowed by virtue of this section in computing a person's trading profits for an accounting period shall not have effect for any purpose of the Income Tax Acts for any year of assessment prior to the year 1974-75 or later than the year 1976-77.

In other words, it confines the relief to companies. What the section does not say, and what I think is included in it, is that the private person, no less than the company, is subject to the claw-back, in section 26 (1) (8) of this Bill, which amends section 31 of the Finance Act, 1975. Am I right in taking it that the claw-back applies equally in this section by virtue of the importation of section 31 into the section? I must be. Surely the Minister does intend to give private persons, who are not incorporated, permanent relief—as companies thought they had until the Minister brought in this Bill —and, at the same time provide for an effective claw-back in respect of companies which are incorporated? I would like the Minister to clarify this point. Am I right in my reading of the section that, by the importation under subsection (2) (a) of the provision of section 31, as amended by section 26, in the case of the private person as well as in the case of the company, the claw-back will operate?

The answer to the Deputy's question is in the affirmative in so far as importing subsection (8) into section 12 is concerned. Of course, the question of the claw-back does not apply to the first two years.

I understand that, but it would for the year 1975. An extraordinary problem arises here for any company whose accounts ended with the calendar year and who had published their accounts prior to the publication of this Bill. Remember, the Minister did not give warning of this in his budget speech. All he said in his budget speech, as I think I pointed out on Second Stage, was that he would continue the relief but he gave no indication whatever that the claw-back would be there, whereas the indication was altogether the other way a year ago and, in fact, the terms of section 31 as they stood law at the budget date and stand law at the moment do not so provide.

The result of that was that any company which had audited accounts ending 31st December, 1975, and had completed their accounts before the Minister had brought in this Bill would have taken the difference between their opening and their closing stock, valued presumably on the same basis; they would have taken 20 per cent of the notional profit, that is, the profit, to put it colloquially, that the Revenue Commissioners would recognise by the adding back of various things to what the company would claim was their profit. Twenty per cent of that would be subtracted from the stock difference and this was the stock relief that was taken into the tax computation. Therefore, a company which had completed their operation before the Minister's Bill was circulated would have taken in the stock in that way.

On the other hand, in respect of a company that has to account since the publication of the Bill and a fortiori— because I raised this matter on Second Stage—after the Minister had warned that companies would be well advised to take into account that this would not be a permanent feature—and I am not suggesting he ever said it would be a permanent feature—the question arises as to whether this is a deferred taxation from an accounting point of view and it has quite an influence on the tax computation for a company.

I appreciate that under the section the Minister wants to extend the benefit of the stock relief such as it is at the moment to non-incorporated companies, to what I might call personal traders and he wants to go further and be perfectly fair and give the same benefit as the others had over the years concerned. In other words, the Minister is aiming to put these people on the same basis as if they were incorporated. We are dealing here with a question of trade and not in technicalities as to whether one is an incorporated company or not. That is a very reasonable and proper approach, but it does not import this element into the section. That is why I am adverting so much to the content of the section, because it is important for these people to realise that the claw-back that applies to certain companies will apply in precisely the same way to other companies. The 1974 relief will be absent. The 1975 relief will be given. But there is a big question now for anyone making up accounts for 1975 as to the precise way of accounting for this claw-back, and it has to be taken into account that in 1976 there will be the adjustment of stock in accordance with the paragraph 8 I mentioned. It is important to realise that this attaches to the benefits given under this section 12 as well as to the amendment of section 31. I think the section does nothing more than that, as I am sure the Minister will confirm, and that the Minister's intention is simply to put these people on an equal footing with the incorporated bodies.

The rest of the discussion will have to wait for section 26 of the Bill, and particularly as amended here, when I will have further questions to ask the Minister. It might be helpful if the Minister could shorten the discussion by making some further remarks, because we have a lot of work to get through on section 26 and there are other matters arising from this amendment. It is very difficult to deal with this completely in isolation. There are suggestions that there is more to this very voluminous amendment than the Corporation Tax Bill, and I would like to know if the Minister is forced in any way in this legislation by abuse, because whatever provisions he puts into section 26 to block abuse or unfair use of the provision will automatically be imported into section 12. Although the Minister need not necessarily accept my indication here, if he cleared the air as to what the general position was now, we might get ahead with the business on section 26 and the amendment which I find somewhat intimidating in prospect.

I cannot add a great deal but I will have time to reflect on what the Deputy said before we come to section 26, and it may colour my remarks. However, when he asks are we aware of abuses having arisen in relation to the operation of section 31, I am happy to say we have not.

I am glad to hear that, because there have been rumours to that effect.

No. There might have been some proposals to treat stock differently at the beginning and end but nothing that was insurmountable or a cause of concern.

It was an obvious one to be blocked.

Question put and agreed to.
SECTION 13.
Question proposed: "That section 13 stand part of the Bill."

A question arises on this section which I think has been put to the Minister in representations, but I am not aware of the answer, and it is seeking clarification as to whether it is the intention of this section to ensure that the beneficiary will be treated as receiving a gross distribution of all of the income received before the payment of the surcharge, or if he will be treated as receiving a gross sum equivalent to the net distribution grossed up at standard rate. I think the Minister has received representations on this and an example which would illustrate it, but if it is not immediately available to him I can develop it. The net question is whether the surcharge is to be available as a credit.

The purpose of this section is to provide against the avoidance or deferment of liability to income tax at the higher rates by the creation of trusts, the income of which is to be accumulated pending the happening of some event or the exercise by the trustees of a discretion to distribute some or all of it. The section imposes a surcharge of 20 per cent of the income of such trusts unless the income is distributed within the year of assessment in which it arises, or within 18 months from the end of that year, in such a way as to become the income of a beneficiary and so be liable to the higher rates of tax, if these are applicable, to the beneficiary. If the beneficiary is not liable to tax at a greater rate than the standard rate no additional liability would be incurred. If he is not liable to tax or is liable at the lower rate he will be entitled to repayment.

The provision is especially necessary because of the imposition by sections 101 and 162 of the Corporation Tax Act, 1976, of a surcharge on certain incomes of close companies and service companies. The surcharge could readily be avoided by such companies by the device of channelling distributable income into trusts, the income of which would, in the absence of a complementary surcharge thereon in the hands of a trustees enjoy the tax advantage which the surcharge on the undistributed company income was designed to obviate.

In its commonest form, a discretionary trust is one set up by a wealthy individual to which he transfers substantial funds for the benefit of his children or grandchildren. In the deed it is provided that the trustees, at their absolute discretion, may apply the income of the trust fund for the benefit of any one or more of the specified class of beneficiaries, to the exclusion of the others, as the trustees may determine. At some time in the future the capital on accumulated income would be vested in one or more beneficiaries. In the meantime the income arising year by year to trustees will have been liable only at the standard rate of income tax, even though the income might have been sufficiently large to attract liability at the higher rates if the beneficiaries were chargeable to tax on the incomes at it arose.

Deputy Colley has referred to a submission made to me, and the example which was given in the submission was as follows: from an income trust of £100, income tax £35, surcharge £20, that would be £55, leaving £45 available for distribution. I was asked whether in the example given——

Is it a £100 or £69?

I will give it to the Deputy now. The committee then inquired whether in the example given the beneficiary would be treated as having received the gross distribution of £100 or £69, £69 being £100 × £45/£69.

Section 13 (3) makes the position clear. It provides that no relief in payment in respect of a surcharge will be allowed to the beneficiary. The beneficiary in the example given receives £45 and cannot be treated as having borne tax at more than the standard rate on the gross equivalent of that sum.

Was it £100 or £69 in that case?

I am trying to digest what the Minister has said. Is he saying that the surcharge is not available as a credit to the beneficiary?

If it were so available what would be the effect? It is objectionable apparently from the Minister's point of view.

If a credit could be used the Deputy will appreciate it would negative the whole purpose of the section.

Is this not a case where the Minister is going further and further and this is legislation that is starting off? Initially he wanted to stop accumulations by discretionary trusts so as to defer taxation. He then finds there is a major loophole which was not closed in his Capital or other Acts because it did not provide for the possibility of using a public company. He captures that in the Corporation Tax Act and he creates the new entity of a close company. Now, in order to see that the legislation in regard to a close company is effective he comes round in the circle again and he has to surcharge a trust, which would bypass the close company.

There were two exits, one corporation tax and the other the close company.

The question is really the building of a lot of exits without an edifice, in a sense. It seems to me that the Minister's idea of architecture is all doors to be blocked and windows as well. He gives very little attention to the supporting members.

I am putting up walls that cannot be penetrated.

I am asking the Minister where it is going to end and what is the next one after that? In one section in the end the Revenue Commissioners have to be given a certain discretion. Even in the last section we use "as the Minister may determine". We have to give the Revenue Commissioners discretion. I cannot understand the method by which we do it. At one stage we treat them like children who may get burned or escape into a dangerous compound, and on the other side we let them completely loose. Here we are empowering the Revenue Commissioners, as one would empower a penalty. To impose a surcharge up to a certain amount would be more satisfactory than what is in this section. This is a very clear example for consideration. There are revenue penalties like criminal penalties and in these cases there is power and these powers are exercised with judicial reasonableness by the Revenue Commissioners. When I use the words "Revenue Commissioners" I embrace all their officers, I do not want to put all the responsibility on the individual commission or commissioner.

There is a function being exercised with due discrimination, quasijudicially and as fairly as any judicial process can do it. What are we dealing with here? Really with what amounts to a revenue crime. Any accumulation of trust money to avoid payment of tax and devices of this nature, whatever about their technical legality, have certainly got an element of mens rea that makes crime. I cannot for the life of me see why we cannot give a certain discretion to the authority as a court has to have a discretion. One tries to avoid the criminal law specifying a particular penalty and it is done only in certain difficult cases.

The usual prescription is a sentence not exceeding so-and-so or liable to a sentence of, which the court can give, or a lesser one.

We are really dealing with what could be called a revenue crime. In such a case why not give the commissioners the general authority in relation to penalties of that kind, which they already have in certain respects, when it comes down to brass tacks. I have yet to find a substantial case where anyone could show that there was any abuse of that process. Why should we not take our courage in our hands and give them authority to treat this kind of revenue crime and a discretion to impose the surcharge as a penalty? On this side of the House we have strenuously argued against the 18 per cent rate of interest for instance, which is imposed automatically as a penalty— that is being imposed, right or wrong, mistake or no mistake. In this type of case there is only one way of catching the culprit and that is to give the Revenue Commissioners power to impose a penalty of up to 20 per cent. It also gives them the ability to use their own judgment, which leaves them in a much stronger administrative position because the person dealing with them knows that if they behave fairly and squarely they will be treated accordingly even if they have made a mistake, but if not they must take the full penalty.

On the other hand, if it is tied to a technicality like this a person knows that he either gets out of it on a technicality or he gets the whole wallop anyway. If he wants to get out of it, all his ingenuity must be devoted to some practical way of doing this and he knows that if he is caught the 20 per cent will be imposed. The very natural deterrent that is there, that honesty is the best policy, is blotted out by the Minister's approach. If he takes the approach which I am advocating, he will be surprised how many people will reflect and decide that honesty is the best policy. If a person is trying to get away with something and is not prepared to be 100 per cent honest, he knows that it is a matter of irrelevancy whether honesty is the policy or not the deterrent is gone. I strongly urge the Minister to look at this surcharge business and adopt a reasonable approach. It would simplify our law and simplify the task of the Revenue Commissioners and their officers who have to bear the burden of implementing all this legislation.

I doubt very much if the Revenue Commissioners would regard their job as being simplified if the responsibility of deciding whether or not a particular practice was intended as an avoidance measure was thrust on them. What the Deputy is saying virtually is that the Revenue Commissioners should be empowered to decide what is a reasonable and just tax.

If you do not mind me saying so, I am beginning to think they would make a better job of it than our feet here in this House.

That is a sweeping statement. I am not going to follow the Deputy in that direction. It is desirable that the law should be certain as best it can be made certain, and we are doing that. People might not like it but at least they know where they stand.

I am afraid they do not know that on this Bill.

Question put and agreed to.
SECTION 14.

I move amendment No. 6:

In page 11, line 17, to delete "either of the said periods of 12 months" and substitute "whichever of the said periods of 12 months is appropriate".

Amendment agreed to.
Question proposed: "That section 14, as amended, stand part of the Bill."

Section 11 of the Finance Act, 1968, accords a certain priority in cases of bankruptcy, and so on, to tax due on foot of PAYE estimates. The priority relates to the employer's liability for a period of 12 months before the date of the order of adjudication, or of the filing of the arrangement petition, or of the death insolvent of the employer. The present section, which rewrites section 11, extends this priority to income tax deductible from payments made to sub-contractors. It is a natural corollary of the other provisions in relation to PAYE.

The Minister has probably received representations in relation to the proposal that the section should apply to debts or tax deducted from payments to sub-contractors which accrued duty from the date of the publication of the Act. This section has to be taken in connection with section 62 because it would mean the treatment of debts on winding up would defer from their treatment at the time they were accruing duty.

Priority under section 14 would apply only to sums deducted as and from the commencement of a provision. The earliest income tax month to which the priority will extend is the month from 6th April, 1976, to 5th May, 1976. The tax deducted from payments made during that month is payable by 15th May, 1976. Similarly, in relation to value-added tax the first period entered by the priority will be the taxation period May-June, 1976.

That certainly is the position as we would wish it to be. Could the Minister explain why he says the provision commences only on the 6th April, 1976?

The ordinary commencement provisions apply. I would refer the Deputy to section 83 (6). It will come into effect as and from the 6th April, 1976.

This amendment of section 11 of the 1968 Act would operate as from the 6th April, 1976.

Question put and agreed to.
SECTION 15.
Question proposed: "That section 15 stand part of the Bill."

This section extends, with effect from 6th April, 1976, the PAYE system of tax deduction to persons who have hitherto been assessed by the inspector of taxes for public departments and who were excluded from PAYE when it was introduced in 1960. Certain emoluments, which are specified in paragraph (b) and (c) of section 125 of the Income Tax Act, 1967, will continue to be excluded from PAYE. The operation of PAYE is impractical, for example, in the case of a non-resident employer and emoluments derived from an office or employment held in the course of a trade or profession which are taken into account in the computation of the profits of that trade or profession.

This is the section that imports PAYE into the public service, is it not?

So that all public servants and people in receipt of public emoluments are subject now to PAYE like anybody else, subject to section 16.

Yes, including Deputies.

Question put and agreed to.
SECTION 16.

I move amendment No. 7:

In page 13, line 39, to delete "1918" and to substitute "1967".

This is a drafting amendment which corrects a reference to the Income Tax Act, 1918, which should of course be to the Income Tax Act, 1967.

Amendment agreed to.

I move amendment No. 8:

In page 13, after line 44, to insert the following subsection:

(6) For the purposes of this section, a pension in respect of services for which an individual was in receipt of emoluments for the year 1975-76 shall be deemed to arise from the same source as the said emoluments."

This is a tactical amendment aimed at ensuring that remission granted by subsection (2) of the section will not be refused in whole or in part to a pensioner on the grounds that the pension derived from a different source from that from which the emoluments in respect of which the remission is due were derived.

It is in favour of the taxpayer?

Amendment agreed to.

I move amendment No. 9:

In page 13, after line 53, to insert the following subsection:

"(8) Where the Revenue Commissioners are satisfied that the application of the provisions of this section would give rise to hardship, they may grant such relief as in their opinion is just."

It has been represented to me that while this section spells out in considerable detail the steps to be taken in order to effect this transition from payment of tax on the previous year basis to the PAYE system and endeavours to cover all of the problems anticipated, nevertheless some problems could arise which have not been anticipated and that unless a provision on lines such as suggested in the amendment is included we could have a situation in which hardship will arise which was not envisaged and was not intended to arise and that by providing as is suggested in the amendment that the Revenue Commissioners would, in effect, have discretion to deal with cases of hardship we can obviate any danger of that kind without opening the door to all sorts of abuses. I would hope that the Minister would accept the thinking behind the amendment.

The objective is a worthy one but I believe the amendment would give rise to not a little difficulty. It would, for instance, impose upon the Revenue Commissioners the obligation of deciding where and when hardship was involved, what was hardship, which is a judgment which would vary a great deal from individual to individual and it might involve them in making decisions on the financial circumstances not only of themselves and their staffs but also of Members of the Oireachtas, the Judiciary, a whole multitude of people in public office.

We had a great deal of heart-searching and detailed discussion about the transition from the old system to PAYE and the measures we have taken cover all foreseeable cases of difficulty. I think it is better to await the operation of the system to see if any unexpected cases come to light involving hardship and if they do, of course, remedial action can easily be taken. I would consider it wholly undesirable that the sweeping measures suggested should be introduced. The danger is that where it is introduced in this particular case it could be taken as a precedent for conferring on the Revenue Commissioners powers which I believe they would find intolerable because of the obligation it would impose on them to make judgments of this kind. Let us see how the thing works out and we can correct any difficulties if and when they emerge.

I suspected that Deputy de Valera might have been tempted to contribute to the discussion on this amendment in the light not only of what he said a short time ago but of what he has said on a number of occasions in this House.

I thought silence might be more eloquent.

I do appreciate the difficulty the Minister anticipates might arise here but I do not think that it is right that the fact that the discretion sought to be given to the Revenue Commissioners in this amendment would have to be exercised in the case of office holders, members of the Judiciary, or even in the case of the Revenue Commissioners themselves should be a problem. After all, they do have to exercise at the moment discretion in respect of virtually all taxpayers. I do not think they have been accused at any time in the past of dealing with the classes of taxpayers mentioned differently from other classes of taxpayers. The Minister may say that they have to apply the law.

However, I appreciate the problem that the Minister anticipates could arise here. Of course, the Minister talked about the discussions which took place and he felt that provision had been made for any foreseeable difficulties but he did say "foreseeable" because he had to say that because those not provided for are those that are not foreseen. My concern is that if such a problem arises, first, it may be most acute in a situation arising on the death of a taxpayer and in connection with a pension which may be payable, say, to the widow of the former taxpayer and, secondly, because of the extraordinary high rate of interest chargeable in relation to unpaid tax, before the hardship could be remedied the person concerned, especially a widow, could find herself in considerable difficulty.

I had thought that the amendment might enable such problems to be obviated but if the Minister feels that such cases can be dealt with without hardship to the person concerned until the law is amended, I will not push the amendment further. At least, it is important to have drawn attention to what may happen and to indicate the kind of approach which we think ought to be taken if such problems do arise.

I trust that no such problems will arise but if they do I would hope that it would be possible to deal with them without hardship to the taxpayer concerned arising in any of the ways I have indicated in what I have said.

Amendment, by leave, withdrawn.
Question proposed: "That section 16, as amended, stand part of the Bill".

This section provides for transitional provisions and, if only for the record, there is something that should be said here. Arising from the way the matter was handled, there was considerable vehemence outside the House from two viewpoints. Therefore, it is well that we should see this situation in its perspective in so far as the public service is concerned. My information is that when similar provisions were made in 1960 for the transition in respect of those taxpayers outside the public service, there was a considerable body of opinion in the public service that would have wished to have been included with the rest of the community. Personally, I consider it a pity that any differentiation was made then. I say that having regard to the interests of the public service and in the interests of understanding between the public and private sectors. However, the private sector were put on the PAYE system while the public sector continued on the old basis. The transition at either point was not painless and it is only fair to put it on record that the public service were in a sense taken by surprise—I do not mean immediate surprise as in relation to section 26—but there are problems posed for the individual. Consequently, it is only right that a transitional provision be made.

There seems to be the impression abroad that the public service are getting something out of this. That is not so. They are being treated merely on the same basis as were other taxpayers who were brought into the PAYE system in 1960.

That is so.

It is important that the public realise that no concession has been made in that regard. What is unfortunate, though, is that the means by which the Minister undertook this task, gave the impression that he wished to go ahead directly without giving the same fairness. Far from the public service being put merely on the same basis as everyone else, if this concession had not been given, people in the public service would have been penalised. It is important that people outside the public service realise what was the true position. At the beginning this change showed every sign of being made at the expense of Schedule E taxpayers but what is in this section constitutes no more nor no less than what was done in the case of other taxpayers. Therefore, it is just but what is unfortunate is that the Minister allowed the impression to go abroad that the public service was getting something which other taxpayers did not get. This situation is not good for the public service no more than for any other sector. Consequently, it is to be deplored.

Another aspect of this is the impression outside that the Minister made the transitional provision under duress. There was no need for any duress when he was only achieving justice and equality. The whole matter was handled badly on the Minister's side. It was bad, too, from a political point of view. However, we must all do everything possible to ensure that there is no rift between the community generally and members of the public service arising out of matters like these. I am not the first to say this: if I were, I might be open to the charge of trying to foment mischief. The Minister has found it necessary to make such remarks already.

I join with what Deputy Colley had to say on this provision but although I agree with his very proper suggestion that where the public service is concerned and where the law is being administered by the public service, it is one case where the Minister might take personally the discretion and the responsibility rather than throw it back on any public servant, be he a commissioner or otherwise. The Minister should not abdicate in such matters. I would be going very near the bone if I were to begin to develop that line and the Chair would be likely to apply the sub judice rule. But I think the Minister understands what I mean.

Perhaps the Chair will allow me to harp back a little. In the light of these remarks the Minister may understand why we were so vehement in regard to section 6, why, apart from the element of fairness and all the other arguments we put forward, we were urging basically the case of the Schedule D taxpayers. Already enough damage has been done in creating a contrast between the public service and the rest of the community without adding to it by the type of discrimination that is in this Bill by virtue of the contrast of section 16 with section 6. It is section 6 I object to but I will not repeat all the arguments on Schedule D tax. It is the contrast between sections 6 and 15 that from a public point of view is wrong and bad and has further germs of distrust which some people want to see developing between the various elements in the community. Here I have sympathy with the Minister and his advisers in the problem of dealing with a very special case. In regard to it, all Deputies and the Minister should accept full and exclusive responsibility. It is one section more than another in regard to which Deputies should knowingly accept responsibility and relieve others from such responsibility. I say this by way of explaining to the House the reasons for it.

It is difficult for the public to understand these things. One of the reasons for the gradation of the tax year is the building up of the administrative machinery. The public do not appreciate that the computerisation of these activities, resulting in a considerable amount of efficiency, I should imagine, and when fully developed resulting in considerable economy, has been a task of some magnitude. I suspect that this section in particular could not have been brought in if the equipment, the machinery, had not been ready to cope with it. We have to face up to the fact that certain things will have to be ironed out. I assume that Schedule E taxpayers will come on the computer like other PAYE taxpayers and that similar mechanisms will operate. If people understand that, they will cease looking for skeletons in cupboards and so on.

The difference in assessments for companies and for trading profits may be one of the reasons why the Minister was so adamant on section 6. I think that was a mistake. There is no sense in my adding further to this. One could go through all the provisions which are necessary transitory measures. The whole thing can be compared with earlier legislation on PAYE. In the case of PAYE for everybody else—this is something the taxpayer outside should know—there is an element of expense, an indirect tax, on every employer who is an unpaid tax collector for the Revenue Commissioners. Every employer outside has on him the task and the responsibility and the expense of collecting tax due by his employees and paying it over to the Revenue Commissioners. In that sense there is a hidden tax on every employer outside.

In the operation of sections 15 and 16 there is an advantage to the taxpayer in that the mechanism will be more automatic and should result in greater efficiency, and it does not carry the hidden liability that the extension of the system to the general public had. In other words, there is an argument from the public point of view for doing it. Therefore, from the point of view of the general public what has been done in this section is to the advantage of the public and, to a certain extent, to the detriment of Schedule E taxpayers. It is only fair to emphasise that because of the things that are being said outside.

I suggest that the spirit of Deputy Colley's amendment should be considered. I want the discretion there but I think the person to take the discretion fairly and squarely should be the Minister.

I have indicated very clearly that if discretion is required here it should be brought to and exercised by the House. Cases of hardship may emerge. I am glad Deputy de Valera spoke the way he did. Of course, I would not agree with his criticism of my good self—natural modesty would not allow me to do that; it would be contrary to my well-known humility. He said it was proper that the House should be identified with the changes and the giving of the concessions. He spoke rightly.

There has been an undesirable amount of nasty comment about the remission being granted to the public service in the changeover to the PAYE system, which is no more than the remission granted in 1960 when others were brought in. It can be argued, indeed, that it is less because the remission is being spread over three years rather than being given in one year, as happened in 1960, and the amount of additional revenue which comes to the Exchequer by reason of this change to PAYE, and nothing else, after the remission, is £8 million. So instead of people having a bonus or a gift they will be paying some 20 per cent extra compared with their 1975-76 tax. In that situation it was equitable and necessary that a remission be given because otherwise people could have found themselves having less net take-home pay than they had in the previous year. I hope that having spoken in this way we will kill at least some of the nasty envy which has been voiced in recent months and that people will see that there is considerable additional cost to those who have been brought into the net.

It is fair for us to remark—not that we seek commendation for it—that Members of the House, in passing this —and I trust the Opposition will not oppose this section any more than they did the last one—are, in fact, deliberately taxing themselves as well as others and that they will be paying their share of that addition of £8 million which works out at an average of 20 per cent higher tax than they were paying last year. Of course, this is a measure of the advantage which people in the public service, not on PAYE until now, were enjoying over other taxpayers. When they no longer enjoy the benefits of the old system, it is costing them so much more in tax now. But it is a justification for the change we are making. I said last June that the Government considered that equity required the change be made. The change is now being made but the additional tax which people will pay here is the justification for the remission—which does not wipe out all of the additional tax or anything like it. They will still be paying more than the remission. With respect, as I pointed out on section 6, the same situation does not arise in relation to Schedule D taxpayers.

Why could not the Minister have completed the job by doing something for the Schedule D people, when everybody would be equally and fairly treated?

(Dublin Central): That is the Minister's system of equality.

No, I said, there will not be a higher payment of tax by Schedule D payers in respect of a taxable period. There is a higher payment of tax by PAYE payers.

We cannot open up section 6 again. We have divided on it. I merely say it is a great pity, especially in the light of the argument we have had now.

I want to endorse what Deputy de Valera said in regard to this section and the attitude of this party to it. We think it is justified and correct that there should be transitional arrangements of this kind on the same basis as were operated in the past when PAYE was introduced. But I must say also on this section that one cannot escape the impression that, in operating this section, of which we approve, there will be discrimination in favour of those affected by it and against those affected by section 6.

The Minister quoted the net increase to the Exchequer this year arising out of sections 15 and 16 as £8 million and gave that as a measure of the increased imposition on the public service and on the office holders who are affected. But the Minister knows better than I that his estimated increase under section 6 is £10 million. That is the measure of the increase he is imposing on the self-employed in this year. No amount of sophistry can get over the fact that this is an increase on some people and that a different approach is being adopted in this section. I do not wish to labour that point further; we made our position clear on it. We favoured this section. We regret that a similar approach was not adopted in regard to those affected by section 6.

There are, however, two matters of detail I want to raise on this section. Firstly, in subsection (2) there is a proviso which reads:

Provided that the remission shall not exceed the aggregate of the tax appropriate to the emoluments for the relevant years.

What we want to know is how could it do so and, perhaps, the Minister would give us an example of how it could do so. The second point I want to raise is in relation to subsection (3) (a) which reads:

A woman who is in receipt of emoluments for any period consisting of the whole or any part of the relevant years shall be entitled to the remission in respect of tax on emoluments arising to her in the year 1975-76, if any, as an unmarried or widowed woman:

Could the Minister explain how that will work out in practice? Perhaps I should explain that my slight concern is that this refers to "a woman" at the beginning and then it says she will be treated as an unmarried or widowed woman. The implication in that is that whether she is married or single, she will be treated as single or widowed. I think there is a little more to it than that and, perhaps, the Minister would clarify it for us.

I am not certain that I have all of the Deputy's points but I shall explain the subsections and see how far that gets us.

Subsection (2), paragraph (a) is the main relieving provision. It provides for relief amounting to one-half the 1975-76 tax appropriate to the emoluments, provided that tax appropriate to the emoluments arising in the three years 1976-77, 1977-78 and 1978-79 is not less than that amount.

Is not less than?

One half of the 1975-76 tax. In other words, if the emoluments received by a person in the next three years is less than one half of the tax paid in 1975-76, there will not be a question of getting a rebate in respect of that tax.

How could that situation arise?

You could have a situation in which a person would have left the service. I would say there would not be many of these cases. Nevertheless, they could arise.

I suppose it is theoretically possible all right. It seems very unlikely. The reason for this proviso is not to meet a specific kind of case. It is just a covering provision.

It is a possibility but I would not think it very probable.

Subsection (3) (a) deals with the situation in which in the year 1975-76 a woman is unmarried, subsequently marries and then is in the situation we were discussing earlier, where her income becomes, or is deemed to be, part of her husband's income. It will be seen there that the situation, to say the least of it, is complicated. The purpose of subsection (3), paragraph (a) is to deal with that situation.

Might I stop the Minister there for a moment? I had a suspicion that that might be what this was all about, though I was not certain. My concern was that it starts off by saying: "A woman who is in receipt of emoluments...". The Minister appears to have confirmed my suspicions that what it means is a single woman or a widow who is in receipt of emoluments. Am I interpreting that correctly?

She would now be married. We are dealing with the case of a woman who was not married during the qualifying year 1975-76 but who is now married.

Married during the year 1975-76?

Yes. If she is not married, then she is automatically treated as an unmarried or widowed woman. But, even if she is married, she is to be treated for this purpose, as an unmarried or widowed woman.

If we are sure that she is to be treated as unmarried or a widow, whether she is married or not, then the pharase at the beginning "a woman" is correct. May we take it that that is so?

In the case of a married woman who is to be treated as an unmarried or widowed woman, is there a difference in the allowance or in the treatment?

I have an example which I hope will help clarify the position. I am frightened by the length of the example. However, I shall offer it to you. Before I do so, I want to explain the purpose of the subsection. For the purpose of the remission, a married woman is to be treated as if she were an unmarried or widowed woman. The remission will be payable to her. There would be no question of the remission going to her husband because he is making the return of the income.

Let us assume that a woman civil servant married another civil servant, which is not unusual, in October 1975, and remains in her employment. In 1975-76 her emoluments as an unmarried woman might be £2,000, tax £400 and a remission of £200. The husband's emoluments for 1975-76 would be £5,000. The wife's post-marriage emoluments would be £2,000, a total of £7,000, and the tax is, say, £2,800. The tax appropriate to the wife's emoluments would be two-sevenths multiplied by 2,800, or £800. Apportioned in accordance with subsection (1) (b) the remission would be £400. The tax appropriate to the husband's net emoluments would be five-sevenths multiplied by 2,800, which would be £2,000, and the remission would be £1,000. I do not know if Deputies want me to proceed but I can give the situation for 1976-77.

No. What is the significance there? In that case is the remission £400?

In other words, she gets half, or was it that the tax appropriate to her emoluments was £400?

Then her remission is £200?

That remission is being attributed to her income tax allowance independently of her husband. What is the significance of saying, as is said here, that "it is to be given to her as an unmarried or widowed woman". When there is a difference between an unmarried or widowed woman and the way they are treated for the purpose of allowance, how can you treat this married woman, notionally, as an unmarried or a widowed woman when there is a difference in the way they are treated.

What it is saying is that the remission will set off against her own emoluments. It will appear on her pay slip, not on her husband's.

Is that what is meant to be conveyed?

I would have thought it could be done more simply than is done here.

By definition an unmarried or widowed woman has not a husband and is a sole person, and would have the remission given directly to her.

You could say "a woman who marries during the course of the year 1975-76 shall be treated for the purpose of the remission as an unmarried woman", because that, in effect, is what you are doing.

You could say that but you would have to add "only for the purpose of this remission".

Agreed. I think I understand what is being done. I want to suggest that the Minister might have this looked at to see if it could be simplified. I suggest that the use of the phrase "as an unmarried or widowed woman" is confusing the issue, unless it is achieving more than I think it is.

To be treated as a woman who has not a husband?

Or, even as an unmarried woman.

A widowed woman is a married woman.

It is a notional treatment, "to be treated the same as an unmarried woman". However, I understand what this is about. I hope there will not be too much argument but I think there could be on the wording of it.

The important thing is that the married woman who is to be treated as unmarried or widowed will get the remission and she will be quite content.

Question put and agreed to.
SECTION 17.

I move amendment No. 10:

In pages 14 and 15 to delete subsections (2), (3) and (4) and to substitute the following subsections:

"(2) Where remuneration (hereinafter referred to as `unpaid remuneration') which is deductible as an expense in computing the profits or income of a trade or profession for an accounting period or period of account for the purposes of Schedule D is unpaid at a relevant date—

(a) the unpaid remuneration shall be deemed to be emoluments to which Chapter IV of Part V of the Income Tax Act, 1967, applies and shall be deemed to have been paid in accordance with the provisions of subsection (3), and

(b) all the provisions of the said Chapter IV and of the regulations made thereunder and of sections 7, 8 and 9 of the Finance Act, 1968, shall, with any necessary modifications, apply to the unpaid remuneration as if it had been so paid.

(3) (a) Unpaid remuneration shall be deemed to have accrued from day to day throughout the period of accrual and there shall be deemed to have been paid on each relevant date so much thereof as accrued up to that date or, if it is earlier, the date of cessation of the office or employment in respect of which the unpaid remuneration is payable—

(i) where there was no preceding relevant date, from the beginning of the period of accrual or, if it is later, the date of commencement of the office or employment in respect of which the unpaid remuneration is payable, and

(ii) where there was a preceding relevant date, from the day following that date or, if it is later, the said date of commencement.

(b) Where, by virtue of the provisions of paragraph (a), unpaid remuneration would be deemed to have been paid on a date earlier than the 5th day of April, 1976, that remuneration shall be deemed to have been paid on the 5th day of April, 1976.

(4) The provisions of this section shall not apply to:

(a) emoluments to which section 125 (c) of the Income Tax Act, 1967, applies; or

(b) unpaid remuneration which is paid before—

(i) the date of expiry of 6 months after the date (hereinafter referred to as `the deemed date') on which that remuneration is, by virtue of subsection (3), deemed to have been paid, or

(ii) in case the period of account is one of more than 12 months, the date of expiry of 18 months from the first day of that period of account if the date of expiry is later than the deemed date."

The amendment looks rather intimidating because of its length but it is not. The purpose of this amendment which rewrites subsections (2), (3) and (4) is to remove any ambiguity as to the word "remuneration" to which reference is made in the section and which was defined as `remuneration to which this section applies". The matter is being clarified by the substitution of the term "unpaid remuneration" which is specially defined. The consequential amendments would be so numerous that it is more convenient to re-write subsections (2), (3) and (4) than to deal separately with the several deletions and substitutions. The amended draft contains no more than drafting amendments and in no way affects the provisions of the subsections as introduced.

It seems extraordinary that a Bill is produced and that the whole of three subsections have to be re-drafted and brought in again. This is a feature of this Bill that I find a little mysterious. Although in the case of section 26 I have anticipated fairly valid reasons why it should happen, I must confess I am slightly mystified as to why it should be necessary in section 17.

What happened that this re-draft was necessary? What is wrong in the original draft? It is not enough for the Minister to tell us that it is an improved draft. This House is entitled to have final drafts put before it and, with respect, I do not think it is good enough that we have a Bill circulated, that we operate on the basis of the Second Stage of the Bill being passed and we then get ministerial amendments of this magnitude and scope. If this kind of thing were to continue, before long we would pass one Bill on Second Stage and we would substitute a completely new one on Committee Stage, which would make a complete farce of our parliamentary procedure. That would be the logical end of this process.

The Minister says this was the tidiest way to do this. I am not faulting him on that or faulting the improvement. However, I would like to know why it was not done this way in the first instance. I would like to know, for instance, what was wrong with the first draft. When you have regard, say, to the wording of a section like section 9 or section 15, when major legislation is done in that form, nobody will listen to me, certainly the Minister will not, if I plead for explicitness. Here the Minister is making the case for explicitness, but I rather suspect there is something wrong with the original draft. There are loopholes or something else in it, or otherwise the Minister would not have brought in this extensive re-write of the subsections in question. The Minister will pardon me if I do not accept it as sufficient to say that the new draft is more elegant than the original one. I do not think that argument would weigh with him if it came from this side of the House, so, perhaps, he will not take it as discourteous if we will not accept it either. There is some loophole or something wrong in the original draft that is now being corrected in the new one. I accept without question that once the Minister had to look at this section the cleanest way to do it was this way. I am not objecting to that; in fact, I think the Minister is right here. But would he not tell us what was wrong and why it was necessary to do that? What was the loophole, what was the defect or mistake? What was wrong with subsections (2), (3) and (4) of the original draft as passed on Second Reading?

I think I have already done so.

Maybe I did not understand it.

One has the choice when one sees a better draft of saying: "No, the other one is already published and we will let the Bill stand with its lack of elegance and its potential ambiguity" or one amends it. We have had criticism from Deputy de Valera on occasions and from another great legislator, the former Deputy James Dillon, about bringing in amendments by reference which were almost illegible and unintelligible. I am personally strongly in favour of bringing in amendments so that people can read the whole thing globally rather than have to rush around from one document to another, which is all very confusing and upsetting. Maybe —I am not promising this——

The Minister should keep to that.

——the solution would be to have an explanatory memorandum together with the amendments, but the physical task of the draftsman and the task we imposed on the Revenue Commissioners and the Department of Finance in getting all these explanatory memoranda all out at the same time as a very complex amendment would be too great. However, I give the House this assurance—and I trust Deputy de-Valera will accept it—that there is no material difference between the amendments and the original, but we have removed——

——possible room for argument——

What are they?

——and we have certainly made the language more eloquent. You have the word "remuneration" in line 25 and you have it again in line 27. We say in line 25:

"remuneration" includes all salaries, fees, wages, perquisites or profits whatsoever from an office or employment.

In line 27 we say:

Where remuneration (hereinafter referred to as "remuneration to which this section applies")

Then on a number of occasions down through the original draft, for instance, in line 32, we refer to "remuneration", then in line 41 to "Remuneration to which this section applies"; then on the next page, line 4 we have "remuneration" again. There is a certain possibility of confusion. That is the sole reason——

I accept that.

It is really a matter of somebody having a little more time to have a look at it and to improve the writing. It is no more than that. I can accept the difficulty that Deputy de Valera mentioned, but I think it is better to improve the legislation before it leaves the House than to let it go through, even though in the process of improving it we have a certain amount of difficulty in the House as we debate it.

I accept that, and if I had adverted to that point I would be the first to have made it against the Minister on the original draft. I accept that completely and, incidentally, I am relieved, because I was afraid I was going to be faced with the task of taking every word one by one before we got to the section. It is not in keeping with ministerial attitudes—and I am not referring to this particular Minister—to adopt procedures of this nature. We usually have more room for criticism the other way. Therefore, as far as I am concerned, I will let the matter stand with the sincere hope and prayer that the Minister's philosophy as expressed in his last utterance will remain the ruling one and that he will not revert to the one he so frequently professes when we make points to him about legislation by reference.

I am not aware I have undergone any change of personality or outlook.

It is amazing how it changes across the House.

I am sorry to spoil this little dialogue between the Minister and Deputy de Valera. I have no desire to spoil it and maybe I am not going to, but I want to ask the Minister whether in the amendment he considers that the phrase "unpaid remuneration" is defined.

It is in paragraph (a) of subsection (2).

That is what I was afraid of.

(a) the unpaid remuneration shall be deemed to be emoluments to which Chapter IV of Part V of the Income Tax Act, 1967, applies.

Is the Deputy suggesting that I write that into the——

Would the Minister give us an outline of what that means?

I refer the Deputy to the opening words of subsection (2).

Are we speaking of the amendment?

The amendment, yes, the opening words of which are:

"(2) Where remuneration (hereinafter referred to as `unpaid remuneration') which is deductible as an expense in computing the profits or income of a trade or profession for an accounting period or period of account for the purposes of Schedule D is unpaid..."

The unpaid remuneration is that which is deductible as an expense for the purpose of Schedule D and which is unpaid. The liability to tax arises only when payment occurs. If the remuneration is unpaid the liability to tax does not arise. That is the very thing we are endeavouring to capture by the amendment.

"... hereinafter referred to as unpaid remuneration": is there any danger that that will go beyond the section and beyond the Bill? Certainly "hereinafter referred to as remuneration" depending on how the section is interpreted, where it is in the section or in the Bill, is a little wider than "remuneration to which this section applies" which is clearly limited to the section. There is no intention to extend the meaning beyond the section, is there?

The Minister referred to this broadly as remuneration which is unpaid and which is deductible as an expense in computing the profits or income of a trade or profession. I notice that the explanatory memorandum refers to this as an expense— remuneration which, although charged in the accounts of the employer and allowed as an expense in the computation of his profits, has not been formally paid. May we take it that what is intended is that it is remuneration which is shown in the books of the employer which he would be allowed as an expense if he claimed it but which he may not have claimed on the basis that he has not yet paid it? Would that cover the kind of situation that the Minister has in mind?

To some extent we are getting in on the section but the amendments are substantially the rewriting of the section. I do not know if the House wants to join the debate together.

My difficulty in accepting the amendment without asking these questions is that the amendment excludes the basic part of the section and the definitions.

I am not making any procedural point. Under existing PAYE legislation tax is deductible on payment of any remuneration, including directors' fees, but where an employer fails to pay over to the Revenue the tax deductible from remuneration, there is a liability to the interest charged. These provisions are now being circumvented in the case of private companies. Amounts which purport to be remuneration are shown as expenses in the accounts of the business and are allowed as a deduction in computing a company's tax liability. It is only when the remuneration is eventually voted, which may of course be a considerable time afterwards, that tax is deductible and liable to be remitted under the PAYE legislation. In the meantime the directors are able to enjoy the use of the money, which will have been withdrawn in one guise or another without attracting liability to tax or interest.

The provisions of the section, as I hope it will be amended, are aimed at securing that amounts shown in accounts as remuneration will be deemed to have been paid at a relevant date so that the PAYE legislation will apply as if the remuneration had been paid at that time. This is doing something which Deputy de Valera was arguing earlier ought to be done, that, where a device is being operated with the apparent objective of avoiding liability to tax, the Revenue Commissioners should have the discretion to treat it for what it is, an artifical device to avoid the tax liability. That is, in effect, what this section will be doing.

With regard to the type of avoidance the Minister has in mind does he mean an expense accrued and not paid which would be chargeable as a salary?

Technically it is only when the remuneration is voted that the payment occurs. If money is advanced and described as an expense it is deducted as part of the expenses of the business.

Yes, but there is no actual payment. The payment occurs when the vote has taken place. Quite clearly, it is easy to postpone the vote and have free use of the money without paying tax on it.

(Dublin Central): It would have to be carried forward to the accounts as due. If it was not carried forward it would not show.

Yes. If it was an expense shown in the accounts it would be shown in the accounts to avoid payment of tax on it. It is an expense deductible for tax purposes in computing the profits.

By the company or the taxpayer?

By the company just as paid.

(Dublin Central): It would be shown as a debt due?

Yes, just as wage or salary paid by a company is a deductible expense as far as the company is concerned.

(Dublin Central): With regard to this debt, naturally the expenses, wages and salaries will show up as an expense. That will have to be shown in an account as money due to an employer or an employee of some description. Is that not how it is going to work in the account?

In the following year.

(Dublin Central): No, it would be carried forward in the books as a debt due. In that way he is compelled to pay PAYE.

No, the employee will have received moneys.

(Dublin Central): No.

He will. The company will be charged on moneys' worth but it will not be voted remuneration.

He will not have received it?

(Dublin Central): It will be remuneration.

He will not have received it as remuneration until the vote takes place and places and classifies it as remuneration.

Let us take the case of an individual employer and fix our minds on this employee, no matter what his status. He gets certain remuneration from the company, taxable remuneration, and it does not matter from the tax point of view whether it is charged as salaries, wages or expenses that are not allowed as such by the Revenue Commissioners. It all boils down to the one thing. It is remuneration.

Supposing that in the accounts of the company this money is charged to him in the gross total of the salaries and wages of the company and that it is subtracted from the revenue and so on and there is profit taxable for corporation profits tax. If he does not get that money it does not go through his PAYE account. Is that the Minister's point?

His PAYE return will show the actual tax he got. His PAYE will only be assessable on the actual money deducted from the money he got. What beats me here is that he has got no money and why should they get after him? Surely the company is guilty of a fraud in putting in remuneration that it did not pay. I do not understand the case here. If any company puts in expenses which it has not paid, to say the least of it, it is sharp practice. It is the company the commissioners should go after and there is no reason why they should not be caught with the machinery in another way because what they would find is that an expense that was not properly an expense had been charged against profit. I am a little bit confused as to the necessity of the section.

(Dublin Central): Where a bonus is promised to an employee, let it be a manager or whatever, the bonus is paid at the end of the year or at least there is an arrangement made between the employer and the manager that he will get a bonus of £X to be paid at the end of the year. I have an argument as to why this section should be omitted. For some given reason that manager of a company could say to the employer: “Do not pay me the bonus this year, leave it there and I will collect it in two years' time because I am getting married and I want to buy a house.” In that type of situation the employer when writing up the accounts would automatically bill that expense in as credit that is due to one of his employees by virtue of the fact that they have an arrangement. There are other occasions where this situation can arise and it is justified. There have been cases where there has been an agreement made between employers and employees where the bonus is given at the end of an accountable year and due to a very bad period of business the manager could very well say that due to the circumstances that obtain within the business he will defer payment of this bonus for two to three years until things improve. That is the type of situation that will be caught in it. The Minister is looking at this section from the point of view of a deferred payment to avoid PAYE. Eventually when the bonus is paid PAYE will have to be paid on it by an employee. Does that make any sense to the Minister?

There has been a decision by the special commissioners that if directors receive money or make drawings and have the money in their hands, that is not remuneration. Remuneration does not arise until the money is actually voted. Most practical people would regard that as nonsense. That allows a person a most convenient device to avoid payment of tax.

Is that what this section is all about?

It should say that, so that we would not be talking about managers and bonuses.

Why does it not say directors? The Minister's use of the word "voted" certainly applies to a director but it would not apply to a lot of other people involved in this. How could unpaid remuneration occur in a properly run company, leaving out the case where something would be falsely included as an expense paid, because that would be fraud? I can only think of three methods by which unpaid remuneration can be made available, without falling back on this technicality of "voted by the board of directors". The first one is the case which Deputy Fitzpatrick mentioned, of undertaking to pay somebody some money in the future whether by way of bonus, pension or otherwise. In that case what would happen in company accounts is that a provision would be included and that would either be allowed or not allowed by the Revenue Commissioners for tax purposes. In computing the profit after tax that provision would be added back if it was disallowed. If it was allowed, it would be an expense and the problem would not occur.

The next way it could be done as Deputy Fitzpatrick suggested, is by a creditor. The person concerned could be included as a creditor in the accounts. It would be shown specifically in a category that is identifiable and it would be shown in the same way that other identifiable categories are shown and there should be no problem at all. The third way is that the money could be borrowed in which case it would appear in a bank or somewhere like that. Again, it is traceable and identifiable. I cannot see how it could escape the Revenue Commissioners and it is a question for the Revenue Commissioners to decide whether that borrowing is a remuneration or not. This is a line of country that I cannot go into, not being a tax expert.

To sum up what Deputy Fitzpatrick has said, if it is anything like that then this will appear normal. If it is a case of putting into accounts a sum of money that has not actually been paid and salting it away, that is a fraud under the Companies Acts and any auditor who would connive at that will be guilty of a breach of professional conduct. So, I am ruling out any such misconduct. Short of that, it seems to me that the others would be perfectly identifiable. I am therefore left with the case the Minister has now given us. If it refers to directors then may I ask why bring in categories other than directors, why not specifically legislate for what you are doing. You may be doing this ex abundante cautelae but there is a little bit too much caution involved in this. It is going a little bit far. Can the Minister say, is it really necessary to go this far if that is all he is after and if he is not after more could not the results of this kind of legislation cause more complications in tax administration and more difficulties in accounting without any corresponding benefit or improvement for the Revenue? These are two points which should be cleared up.

What we are dealing with here is remuneration, so called, charged on the accounts.

As remuneration but not voted remuneration. To give you an illustration: a company with accounts for the year ended June, 1972, three directors, and the accounts show remuneration to the three directors of £24,000 each.

A nice company.

A nice company, yes. But, when the accounts were furnished to the Revenue Commissioners this statement was made for the edification of the Revenue Commissioners:

We would point out that no annual general meetings were held by the company in 1972 and, as a result, the operation of PAYE cannot be implemented because the remuneration involved was never voted.

Then the great news, that it is intended to hold annual general meetings in March, 1976 and operate PAYE from then.

I see the whole thing. I see the voting the Minister means now—the passing of the accounts. I was under a misapprehension. I thought it was voted on a board of directors.

This is a very simple device to avoid paying tax. In conscience no one here would want to be a party to continuing that facility.

What is the Companies Act for? What kind of company?

Unfortunately I do not know. This was given to me by the Revenue Commissioners.

Surely the Companies Act would cover that?

The following year there was something similar.

I am learning.

I do not know yet whether it is the intention to hold an annual general meeting this year to effect what has been implemented.

The Minister is talking about private companies now really, is he not?

(Dublin Central): These must be very isolated cases.

I can see what the Minister is at.

We are talking about the principle involved here but could I ask the Minister, has such a case arisen or is such a case likely to arise other than in the case of directors of a company?

You could certainly have remuneration paid to executives of a company who might not be directors. I have reason to believe that that has occurred.

Is it the problem that it is shown in the accounts but the accounts are not approved by the directors? Is that the technicality involved here?

No, there is no voting of the remuneration.

The accounts or the remuneration?

The remuneration— as authorised for remuneration.

Why do you not get at that problem, not bring in the bonuses and so on?

There is confusion here. It is really a question of company law. You talk about trade or profession and Schedule D. Schedule D deals with self-employed persons, professional people and so on. What the Minister is obviously after are private trading companies or even non-trading companies. From what he has said now, it is companies he is talking about and it must have been a private company that he referred to because no public company would get away with that. There is a mix-up here between two things. It is only a company who has to vote. If it is a Schedule D taxpayer or the employees of a Schedule D taxpayer it is not an incorporated body and there is no necessity to vote. I cannot see how the position the Minister has quoted —we do not seek any specific information and do not want any identifying information—applies to Schedule D taxpayers because Schedule D taxpayers are immediately available on their accounts. I thought I understood it but now the matter seems to have become somewhat woolly. Can we sort it out in this way: is there any problem with a public company? "Public company" is defined in the Companies Act and there is a set of rules there. If there is a reputable firm of auditors, and there must be auditors in that case, what the Minister is afraid of cannot happen without being revealed and the Revenue Commissioners can demand the information they require and they will get it. I think we can leave public companies out. Then we come to private companies, either trading companies or non-trading companies. Trading companies are probably the ones more liable to this form of temptation because it is rather difficult to see how it would operate for a non-trading company. If it is the problem of a private trading company why not say so and focus your attention directly on the problem of the private trading company?

Lastly, it can be Schedule D cases. If it is Schedule D cases I fail to see how it is necessary to vote. What is necessary is to complete the accounts. There is the whole tax code, with all the accounting periods and what the Revenue Commissioners may require by way of information and so on and all the combat that has been going on with Schedule D taxpayers over the years and admittedly the abuses that Schedule D taxpayers have been responsible for because many Schedule D cases did resort to the device of private non-trading companies and even trading companies to avoid tax. Why is it necessary? Are not all the necessary powers of inspection and all the rest of it already in existence and is it not possible to deal with them on a surcharge basis, as has been done? At least be consistent. The Minister has got after trustees and after public companies on a surcharge basis. Here is something similar to a surcharge position and the Minister is adopting a totally different technique.

This is what completely complicates the tax law. I am not trying to be difficult but I would ask the Minister to answer the following questions: what is the impact, (a) on a public company, (b) on a private trading company, (c) on a private non-trading company and (d) on Schedule D taxpayers. I apologise to the Minister for the delay caused by my mistake but I was under the impression that when the Minister said "voted" he meant voted by a board of directors. I am aware now that he means voted at an annual general meeting. I can see the relevance so far as that is concerned either to a private or to a public company. However, I should like the Minister to clarify the position under each of the four heads I have mentioned.

I see no merit in identifying wrongdoers in case there is a possibility that others in another sector could produce a similar device. To say that something is wrong does not affect the innocent and Deputy de Valera is right in saying that he cannot see how this would apply in a public company, assuming that the public company is run properly. But there could possibly be public companies where, in anticipation of the legality being completed, remuneration would be drawn pending the passing of a resolution to authorise it. The Deputy says that the annual accounts would have to be produced but there could be several months delay in payment of tax in such a situation. It is not a device that the best of companies would use but it is possible and, therefore, it would be wrong to exclude any group merely because they are unlikely to engage in such practice or because we do not see how they could engage in it. While to render something illegal does not affect the innocent it hinders those who might be tempted to engage in the practice concerned. What we are discussing here is clearly an avoidance practice but it is our aim to catch the receipt of funds which, obviously, are remuneration and are intended to be such. In other words, the time of receipt will be deemed to be the time of remuneration.

That is fair enough.

The Minister is right in so far as he goes but I have certain practical difficulties here. Let us take a simple but very prevalent case. Suppose an employee—I am not talking of a director—is advanced a certain sum of money by way of expenses before he goes away on some company business. He can only account for the money after he has ascertained his expenses. More often than not he would be entitled to a further advance. There might be the very unusual case where his expenses and his advance would balance but there would also be the possibility of his having a surplus to surrender.

That would not be remuneration.

I am wondering whether it can be construed as remuneration within the terms of this section because precisely that device could be used.

I think we are opening a Pandora's box here.

Yes. I can make all sorts of accounting arguments here but what is to be the position in such a case? We do not seem to be clear on what we are doing although the Minister is clear on what he wishes to do. Again, I invite him to take up the question under the headings I have mentioned. There would not be any identification of wrongdoers. All I am asking for is the situation in respect of four well-known legally defined categories. There are many public companies which can have capitals of from a few thousand pounds to several million pounds. Surely nobody could identify these. There is the private trading company which is mainly what the Minister has in mind and there is the private non-trading company which is the one most known to the Revenue Commissioners as a tax avoidance device. It has its bona fide uses as a trust but is used too often for tax avoidance purposes and, consequently, has a bad name. The fourth is the straightforward Schedule D taxpayer, the unincorporated trader, for instance.

I invite the Minister to take the situation in regard to these four broad categories and to say what is the anticipated problem, what are the effects of the section in respect of each.

There is no difference here between a trading and a non-trading company. We are concerned only with the question of remuneration which is a deductible expense for the purposes of the accounts of a company. Regarding the illustration given by the Deputy of an employee being given a sum of money towards expenses and the sum being greater than the actual expenses, such excess would be treated as benefit in kind and would be caught under the ordinary benefit-in-kind provision and, consequently, brought into the tax charge.

I shall not press the Minister on this but I am a little disturbed by his reluctance to give a clear answer to the question I put in four separate parts.

I have given the answer. I have said that it makes no difference whether a company is a trading or a non-trading one in so far as this provision is concerned. I explained what I would assume to be the position vis-á-vis a public company that was run properly. In that case this proviso would not arise.

What about the Schedule D taxpayers?

(Dublin Central): The same would apply.

Yes, the same would apply.

There is a certain amount of cross purpose here. We have indicated to the Minister sufficiently that certain possibilities arise out of what he is trying to do here and I do not think the matter should be pursued further. Indeed I am somewhat concerned that certain implications have arisen from the discussions here—people who want to can develop this—and all I would say is that in the purpose he is trying to achieve we are in agreement with him but we are concerned that he may in the course of what he is doing catch something that he should not be catching. Primarily I am concerned because I think he is going about it in the wrong way. Nevertheless, we agree with what he is trying to do and consequently I do not think we should pursue the matter. I would ask the Minister to have his advisers take a look at the report of the debate on this amendment and consider the implications.

(Dublin Central): I fully appreciate what the Minister is trying to do. This is money held in limbo. I would be concerned that payment would be forced out of a company—commitments made to people in regard to bonuses, and agreements made between employee and employer—that certain bonuses would be deferred in times of recession. These payments would have to be made or otherwise they would come under Schedule D or be subject to PAYE.

Very briefly I should like to add to what Deputy Fitzpatrick has said. At times there may be reasons, because of various problems to do with liquidity, for some method such as this to be employed. I do not see anything wrong in it provided the individual concerned had not at the same time borrowed money from the company. That is where I could see wrong being done to the Exchequer and to the taxpayer. There could be circumstances where individuals working together might agree to forego salaries or some part of them for a limited period. If that were done and this amendment were to catch them, I do not think that would be right. I am not sure if it can happen. We are speaking of unpaid remuneration which has been declared as remuneration and allowed for tax purposes by a company. Provided that money was not laid out or lent to an individual I do not think there is anything wrong with it because it might be necessary to do it for two or three years until a company recovered.

I will put in a brief parting shot. This would not amount to a device to get corporation tax paid in advance in the guise of PAYE, or would it? That amount would not be big.

Amendment agreed to.
Section 17, as amended, agreed to.
SECTION 18.

Amendments Nos. 11 and 12 are related and may be taken together.

I move amendment No. 11:

In page 15, line 17, to delete "with effect as on and from the 6th day of April, 1975,"

Section 18 (2) imposes a limit on the total amount of the deduction that may be claimed by a farmer whose farming profits are assessed to tax on a notional basis. The purpose of this limitation, it will be recalled, was to ensure that loss relief would not be available as a result of a calculation which could in certain circumstances produce an artificial loss. The section as it stands imposes the limit for 1975 and 1976. Following publication of the Bill, a number of tax agents advised inspectors of taxes that it was their intention to make claims for their clients in respect of the year 1974-75, their aim being to exploit the apparent defect in the law for the year in respect of which it has not been remedied. The amendment now being moved deletes the reference to 6th April, 1975 and makes the provision effective in respect of the year 1976-77 and as respects any year for which a claim for loss relief is made after 30th March, 1976, the date on which the Bill was released for publication. Since the notional basis is to be continued for 1976-77 without reference to any preceding year of assessment, the present position likewise applies for that year without reference to any subsequent year of assessment.

I think I should explain what the section is doing. It imposes a limit on the total amount of deductions that may be claimed by a farmer whose profits are taxed on a notional basis. Total deductions are not to exceed 40 times the rateable valuation of the farm lands. In other words, the notional basis may reduce farming profits to nil, but it was never intended, and nobody could argue it should be intended, that it should be used to create an artificial loss that might be set off against other income.

I should like if the Minister repeated what he said about claims being made to the Revenue Commissioners or indications being given to them by various agents of the intention to make claims. Is it to make claims in respect of losses?

It is to formulate losses on the basis that this weakness or loophole existed, and of course they were not aware of it until we identified it by bringing in the amendment to stop anybody making any such claim. Quite clearly, no case can be made to allow people to generate artificial losses to be used against other profits. The approach was made after publication of the Bill obviously with the intention of exploiting the apparent defect in the law for the period during which the defect existed.

To take out the words in the amendment "as and from the 6th day of April, 1975", would seem on the face of it to mean that the loophole is being closed only from the passing of this Bill. Is that correct, and if so does it not mean that in respect of the previous two years the loophole can be used?

It is closed in this way, that the defect cannot be availed of by anybody who makes the claim after 30th March, 1976. Therefore, these claims, if made now, are abortive.

30th March—that is not incorporated here, is it?

It is in the amendment the Deputy is speaking about.

Progress reported; Committee to sit again.
Top
Share