Dáil Éireann debate -
Thursday, 2 Dec 1976

Vol. 294 No. 9

Double Taxation Relief: Motion.

Minister for Finance (Mr. R. Ryan)

I move:

That Dáil Éireann approves the following Order in draft:

Double Taxation Relief (Taxes on Income and Capital Gains) (United Kingdom) Order, 1976,

a copy of which Order in draft was laid on the table of Dáil Éireann on 15th day of November, 1976.

The present convention was signed on behalf of the respective Governments on 2nd June last. A protocol to the convention was signed on 28th October. White Papers containing the texts of both the convention and the protocol have been laid before both Houses of the Oireachtas by the Minister for Foreign Affairs.

Copies of the draft order containing the text of the new convention and the protocol were laid before Dáil Éireann on 15th November.

Section 361 of the Income Tax Act, 1967 provides that an arrangement entered into with a foreign Government to afford relief from double taxation shall have the force of law here if the Government makes an order accordingly. Before such an order can be made, a draft of the order must be laid before Dáil Éireann and a resolution passed approving it.

Deputies will find the text of the convention and the protocol scheduled to the draft order now before the House. A separate memorandum has also been circulated with the draft order explaining the effect of the provisions.

The convention and the protocol set out revised arrangements for the avoidance of double taxation on profits, income and capital gains between Ireland and the United Kingdom. The new procedures are to supersede all the existing agreements between the two countries which date back to 1926 for income tax and to 1949 for company taxes. The convention follows the general principles of the model convention prepared by the Organisation for Economic Co-operation and Development, a body of which both States are members.

These earlier agreements do not reflect the recent changes made in the fiscal laws of the two States and also those in the international field since they were concluded.

The convention and the protocol continue certain exemptions from income tax by confining the charge to tax to the country of residence, as in the Residence Agreement of 1926, but otherwise provide for relief from double taxation by means of a tax credit for foreign tax. The treatment is in line with the double taxation agreements which Ireland has with other countries.

I will now briefly outline the main features of the new convention and the protocol with particular reference to those provisions which involve changes in existing procedures.

The existing rules in regard to residence under domestic law will continue to be applied in the two countries to determine residence for tax purposes. Where, however, residence in both States is established under this procedure, a series of tests has been introduced in accordance with the OECD fiscal domicile article, which will result in the allocation of residence to one of the States, thus eliminating the present double resident concept. The residence of a company will, however, continue to be determined by the place of its effective management and control.

Income from immovable property is to be taxable in the country in which the property is situated, irrespective of residence considerations (Article 7). Likewise, capital gains from the alienation of immovable property and certain related movable property of a "permanent establishment" of an enterprise may also be taxed in the country where the capital gains arise (Article 14). Charities and tax-exempt pension funds will be allowed full exemption from tax on income and capital gains from immovable property in the two countries. These exemptions were not provided for in the convention as signed on 2nd June, but following consideration of the results which could follow any change in the existing tax exempt position of income from property owned by United Kingdom pension funds with income from Irish properties, I decided that an approach should be made to the United Kingdom authorities to seek reciprocal exemption from tax on rents arising to approved pension funds and charities of both countries. The Irish representations were accepted by the United Kingdom authorities and the exemption, which also extends to capital gains receivable by those bodies from the alienation of immovable property, has been included in the protocol to the convention signed on 28th October.

Under the previous arrangements, the income tax charge on profits arising from a branch or a permanent establishment in one country of a company resident in the other country was confined to the country of residence of the company. The revised proposals secure that profits of a branch or permanent establishment of a company resident in the other country will be liable to corporation tax in both countries. The country of residence will, however, allow a tax credit against its own tax charge on the same profits to relieve any double taxation arising. This procedure follows generally the treatment of profits under the 1949 Agreement (as amended) between Ireland and the United Kingdom relating to corporation profits tax in Ireland and profits tax and corporation tax in the United Kingdom.

In regard to dividends, the new provisions alter substantially the previous position under the residence agreement. In the case of portfolio investments, they provide for payment of the full tax credit relating to the dividend in place of the existing residence exemption, subject, however, to a withholding tax not exceeding 15 per cent of the aggregate of the dividend and the tax credit. The tax withheld will be available as a credit against the recipient's tax liability in his country of residence. Irish charities and approved superannuation funds will effectively be in a similar financial position under the new as under the current arrangements. In future they will be paid the full United Kingdom tax credit but will be free from withholding tax.

An individual taxpayer who is a resident of one State and who receives dividend income from the other State and whose total income from all sources is less than the aggregate of the personal reliefs available in the source State of the dividend income will be entitled to reclaim the withholding tax in full. Marginal relief against the tax withheld may also be available where the total income would attract a liability to tax in the country of source, depending on personal circumstances.

A direct investor (that is, where a company holds, directly or indirectly, 10 per cent or more of the voting power in the company paying the dividend) will not be paid the tax credit on dividends arising on investments in the other State. The country of residence will, however, allow a credit for the tax borne in the source country.

There is no change proposed in the existing treatment of income from interest and copyright royalties. The charge to tax on income will be confined to the country of residence.

In future, income from employments will be taxable in the country of residence and in the other country also if the employment is exercised in that other country. Any relief due for double taxation will be given by the country of residence. This position will apply from 6th April, 1977 and the existing exemption available under the residence agreement to non-residents will continue for the year 1976-77. Pensions from private sources will continue to be taxable only in the country of residence.

There are special provisions relating to income from employments and pensions receivable from governmental or local authority sources, which change the existing rules of allowing exemption to non-residents. From 6th April, 1977 onwards, such income will, normally, be taxable only by the paying State.

Article 25 of the draft Convention follows the lines of the corresponding article in the OECD Model Convention. It provides for the exchange of information where it is material for the purpose of carrying out the provisions of the convention. There are similar articles in all Ireland's double taxation agreements, with Switzerland as the only exception. The new provision would not enable the revenue authorities of one State to seek information from the other revenue authorities which cannot be looked for under the laws or administrative practices of the latter State.

The convention provides that it is to enter into force on the exchange of notes confirming that the necessary steps have been taken to give it the force of law in the two countries. It will then have effect from 6th April, 1976, except in relation to income from emoluments and Government and local authority pensions, when it will apply from 6th April, 1977.

In conclusion, the new convention brings our double taxation arrangements with the United Kingdom into line with our arrangements with other countries and with international practice generally.

I recommend that Dáil Éireann approve the draft order.

Mr. Colley

There are certain comments I want to make on this under the various headings but there is one major issue which I will deal with at the end of my remarks, as the Minister has, in fact, left it to almost the end of his remarks. That is the question of exchange of information under Article 25. It is of some interest to note the taxes that are covered in this convention and to note the omissions. One significant omission is the wealth tax. There is, of course, no wealth tax in Britain. Proposals for it have been dropped by the British Labour Government.

Mr. O'Malley

Mr. Michael Foot even thought it was foolish.

Mr. Colley

The Australian Labour Government dropped it too. It is worth pondering on the fact that this country in its present economic state nevertheless finds it necessary and desirable to impose a wealth tax.

The situation in regard to the taxes covered raises certain questions. For instance, why do we find that corporation profits tax is dealt with in Article 2 (a) (ii) as one of the taxes covered by the convention in Ireland? Corporation profits tax is so mentioned but if we refer to Article 28 dealing with the entry into force of the convention with different dates for different taxes there does not appear to be a reference to corporation profits tax. On the face of it the convention is said to cover corporation profits tax in Ireland but there is no provision for its entry into force in relation to this tax. Perhaps the Minister would explain this.

Furthermore, in Article 28 we find it is proposed that the convention would enter into force in Ireland as regards corporation tax for the financial year 1974 and subsequent financial years. Perhaps the Minister would explain why that is so and relate it to what he said in his speech when he stated that the convention would have effect from 6th April, 1976, except in relation to income from emoluments and Government and local authority pensions when it would apply from 6th April, 1977.

I would refer the Minister to the provisions of Article 10 related to associated enterprises. Since the Minister has said that this convention is modelled on and contains the principal provisions of the OECD model and conforms generally with international practice, I wonder if the provisions of Article 10 were to be applied on a general basis between various countries, particularly developed countries, it might not ensure a proper system of taxation in relation to multinational companies? I know this is an old chestnut but one should pay some attention to the possibility whereby this could be tackled with a degree of international co-operation. It may be that the definition in relation to associated enterprises could assist in this matter.

In the case of the provisions relating to dividends, the Minister referred to portfolio investors as distinct from individuals and this is also mentioned in the explanatory memorandum. Perhaps the Minister would indicate where in the text this distinction is made and, in particular, the reference in the text which is deemed to be a reference to portfolio investors.

While I understand that the provisions in regard to dividends have to be made in the way set out, it should be understood that there are problems arising with regard to this matter. In the case of an Irish resident if the Irish rate of tax for which he is liable, that is the effective rate, is less than 15 per cent because of personal allowances, the credit available is reduced accordingly with the result that there will be some unrelieved British tax. It has probably been pointed out to the Minister—if it has not I am doing so now—that an adverse feature of what is in effect a new part credit system being introduced in relation to dividends is the real loss to certain shareholders in British companies. I am speaking solely of shareholders resident in this country. That kind of loss will arise where advantage cannot be taken of any of the 15 per cent UK credit by reason of there being no Irish liability or insufficient liability with which to offset it. I would draw the attention of the Minister to the situation of an Irish company which is not liable to tax here because of losses or capital allowances. It appears such a company would be unable to take advantage of the UK tax credit. It should be understood by those concerned that there are possibilities of individuals or companies being in the position of being unable to obtain full tax credit as envisaged in this convention.

It appears that one can find as a result of the implementation of this system, which admittedly has certain advantages, that there will be a considerably greater volume of administrative work with increased costs as a result particularly with regard to dividends. Irish shareholders will be adversely affected in some cases because they will not be able to get the full credit to which they would otherwise be entitled and even if they are the cash flow will be affected. We should recognise that there are these adverse features in what is a new system.

The major matter to which I wish to refer relates to Article 25 and the question of the exchange of information between the two countries which, in effect, means between the Revenue Commissioners of the two countries. There is a widespread fear that the consequences of this article will be a very large outflow of money from this country and there is considerable evidence that a substantial outflow has taken place already as a result of this. As I see it, the wording of Article 25 permits, authorises or even envisages the exchange of information between the two sets of Revenue Commissioners in relation to taxpayers within their own jurisdiction.

I am quite certain the Minister has received representation in relation to the matter. I am sure that is why he made the reference to it in his speech. He stated:

The new provision would not enable the Revenue authority of one State to seek information from the other Revenue authorities which cannot be looked for under the laws or administrative practices of the latter State.

Surely that it no saver? After all, what can be looked for under the laws or administrative practices of this State as between the Revenue Commissioners and the taxpayer is one matter but the disclosure of that information to the British Revenue Commissioners is quite another matter. We should be realistic about this. The fact is that there are very many people resident in Britain, many of them of Irish birth, who have invested substantial sums of money in this country. I do not want to put a tooth in it. In many cases the British Revenue are unaware of the existence of those investments.

Let me make it quite clear that it is no part of the duty of this House or of the Minister for Finance to protect the British Revenue as indeed it is no part of the British Revenue to protect the Irish Revenue. The Minister is well aware that traditionally the courts in this country and, indeed, in Britain have refused point blank to enforce the revenue law of another country to the extent that where such an offence has been wrapped up and camouflaged as a criminal offence and extradition sought in respect of it the courts have consistently refused to order extradition or to enforce in any way the revenue laws of a foreign State.

This is a reasonable approach from the point of view of any State. Our concern should be with the liability to our Exchequer not with the liability to any other Exchequer. Therefore, if there is anything in Article 25 which would in any way cause our Revenue authorities to enforce or assist in enforcing British revenue law we should not accept it. We should have regard to the consequences to this country. By its very nature it is almost impossible to get adequate details of the kind of money that is involved in this situation. It may be contended that it is a swings and roundabouts situation and that what we should lose on the money withdrawn from here we would gain on the money withdrawn from Britain and the North. Information which has come to me indirectly from banking sources, who are probably in the best position to know, suggests that the flow of money of the kind we are talking about is in our favour by anything between three to one and five to one. If that is so we will stand to lose more than Britain under this arrangement by anything from three to one to five to one.

Mr. R. Ryan

Just to keep things right I hope the Deputy will have regard to section 175 (4) of the Income Tax Act, 1967 which effectively prevents any of the horror he is describing.

Mr. Colley

Will the Minister let me make my speech in my own way and he may be able to end up reassuring not alone me but many people who are far more vitally concerned than I am in this?

Mr. R. Ryan

The Deputy knows the old saying that mischief can run around the world while truth is tying the shoe laces.

Mr. O'Malley

I am afraid the mischief has run around already.

Mr. R. Ryan

We now have Mr. Mischief talking.

Mr. Colley

I hope the Minister is not deluding himself into thinking that no mischief has been done already. Surely he is aware of the damage that has been done already?

Mr. R. Ryan

I am aware that there are mischief-makers.

Mr. O'Malley

The greatest one this country has seen for a long time is sitting on that seat on the other side.

Mr. R. Ryan

The Deputy ought to realise that the law of the land is the 1967 Income Tax Act and therefore the mischief mongers have no legal foundation for any of the allegations made.

Mr. Colley

I am sorry the Minister is inclined to approach the matter in the way he seems to be because it suggests, first of all, they he may not be aware of the damage already done or, secondly, if he is, he is inclined to blame mischief mongers, to quote himself. Let us be realistic about this. The Minister glossed over very neatly in his speech a basic fundamental error that was made in the negotiation of this convention by whoever was involved in it which had to be corrected by further negotiations and the addition of a protocol. Since the Minister has said what he did we cannot ignore what happened, which is that when this convention was concluded we would be left in the position that we would be deprived of enormous investment in this country by British pension funds and superannuation funds. Great pressure and representation had to be brought to bear in order to get anything done about this.

The net effect was that the agreement had to be renegotiated and a protocol added to the convention. That situation does not inspire confidence in the Minister or in those who were directly involved in the negotiations that they knew precisely what they were doing or that we can take it they were aware of the possible consequences of Article 25. I did not intend to put the matter quite so strongly but when it is suggested that the mischief is being created either on this side of the House or outside of it, or both, it is time we realised the mischief that was caused by that grave error that was involved in the negotiation of this convention, which has had to be corrected. If that kind of error was made and if the basis for confidence in the manner in which this convention was negotiated is undermined in that way then we are entitled to ask very specifically to what extent was the risk involved in Article 25 contemplated and to what extent is the Minister simply trying to justify another possible error in the negotiations? The fact is whether or not the interpretation of Article 25 is such that it will result in disclosures many people already believe that this is so and as a consequence have taken their money out of this country. My objective is to try to reassure such persons and to try to ensure that further money does not flow out of the country and, hopefully, that the money which has gone will be brought back again.

In order to try to achieve this, I put down an amendment which was not acceptable for procedural reasons. It is not open to us to amend this motion. We either have to accept it or reject it. That is all the House can do. I should like to refer to the amendment because it makes clear what we were trying to achieve. The amendment proposed to add to Article 25 a new paragraph as follows: In no case shall the provisions of paragraph 1 or 2 be construed so as to impose an obligation or confer a right on the competent authority of either contracting State to alter the practice or procedure relating to exchange of information in force on the 1st day of June, 1976.

In other words, what we wanted to establish was that there would be no change whatever in the practice and the procedure heretofore followed by the Revenue authorities of both countries. I know the amount of disclosure which is permissible by law, and which has been permissible by law in the past, is considerably greater than the amount of disclosure which took place in practice. The assurance I was seeking, and the only assurance, in my view, which will make certain that no further money flows out of the country and hopefully may cause money which has flown out to come back, is that there will be no change whatever in the practice, the procedure, the manner and the circumstances in which disclosure between the two Revenue authorities in this country and Britain has been conducted heretofore.

I want to urge the Minister to put on the record of the House a clear and unambiguous undertaking that there will be no change whatsoever in the practice and the procedure adopted by the Revenue Commissioners in relation to disclosure of matters concerning the financial and fiscal affairs of any tax payer to the British revenue. I would have preferred, of course, to have it spelled out and written into this agreement but, since that is not possible, the only thing in my view which will successfully ensure that there is no further doubt is a specific and unambiguous undertaking of the kind I have mentioned on the record of this House. I cannot guarantee that such an undertaking will repair the damage done, but it would appear it is the best we can do in the circumstances, and certainly the best we can do from this side of the House.

I should not like anyone either to underestimate the importance of this matter or to imagine it is only the concern of people many of whom, though not all, are, perhaps, evading their tax liability in Britain. The real concern is not with those people at all but with the effect on our economy of the withdrawal of the funds concerned. Those funds are invested in a very wide variety of avenues. The most obvious area is, of course, the banks, but there are many other areas. The building societies are certainly the recipients of substantial sums of this kind. There are many other areas of great importance to our economy.

I want to stress that our real concern is to ensure that damage will not be caused to our economy, or to the banks, or to the building societies, or to any other sector of our economy as a result of a lack of thought in the terms agreed on in this convention. I repeat that our concern is highlighted and heightened by the lack of thought shown in regard to the provisions originally agreed to concerning investment in this country by pension funds, charities, and so on, with the appalling consequences which are likely to flow from that, which were eventually recognised by the Minister and eventually something was done about them, but only after a great deal of agitation and pressure.

So far as we can, we want to ensure that the mistake made there is not repeated in Article 25 and, in any event, whatever the correct interpretation of Article 25 and whatever the correct interpretation of the income tax Act, 1967, that there will be a clear, unambiguous and incontrovertible statement on the record of this House that there will be no change in the circumstances in which disclosure will be made between the Irish and the British Revenues from what operated heretofore up to 1st June of this year.

The Minister would be ill-advised if he were to follow the line he has half embarked on of trying to talk about mischief makers. He should recognise where the trouble occurred, and why it occurred. His efforts ought to be directed, in so far as he can do anything about it, to closing that gap, to ensuring that the persons concerned are under no misapprehension whatever and to reassuring them that there will be no change in the procedure. In my view, that task rests on the shoulders of the Minister in the interests of our economy. I trust that when he is replying to this debate the Minister will discharge that obligation so far as he can. It is the most important aspect arising in regard to the motion before the House. Unless we get the kind of assurance I have mentioned on the record of this House, grave damage will have been caused to our economy and will be caused in the future.

Mr. O'Malley

I support what Deputy Colley has said in relation to Article 25 of this convention. I will not say I am not concerned with the rest of it but the rest of it is somewhat beyond me in many respects and does not create major problems for the community. Article 25 does in spite of what the Minister for Finance has said. Since July of this year approximately ten people—without having counted them accurately—have come to me to know what was in this Bill, as they describe it, coming before the Dáil to catch English money here and Irish money in the North and in England. I said: "There is no such Bill that I know of". I was assured there was and when I made inquiries I discovered that in June a double taxation convention had been signed. It was published some time later. All I could see in it that related to the topic worrying a very large number of people was Article 25. I discovered in October that it had not come before the House. I then discovered at the end of October that a further major protocol was entered into between the Irish and British Governments because a fundamental and serious error had been made by those who negotiated on the Irish side in the original convention signed in June, a fundamental and serious error which would have cost this country tens of millions of pounds. Because they and they alone made that mistake this country stood to lose tens of millions of pounds. On the 28th of October last they had to go back with their tails between their legs and ask the British Government, for God's sake, to sign an amending protocol to cover the error made.

Deputy Colley has suggested—and is entitled to suggest—that, perhaps, an equally serious and fundamental error was made in Article 25 of the original convention of June, equally serious to the terrible mess made in relation to charities and other tax exempt institutions.

The obligation is on the Minister for Finance and those who negotiated these protocols to prove to the satisfaction of this House and to the country, at present in great doubt about this matter, that no such error was made in Article 25, to prove beyond doubt that the traditional protection the ordinary citizen has had from the extra-territorial application of another State's revenue laws will be retained.

Even within the past 12 months there have been cases brought by the citizens of the United Kingdom before our High Court when extradition orders were made against them in which they claimed that what they were allegedly extradited for were not criminal offences in the accepted sense of the words but were in fact revenue offences dressed up for the purpose of seeking extradition from this country. It was well known by the British Revenue authorities that if they went about the matter in a straightforward way and sought to extradite someone for a revenue offence that would not be enforced by the courts of this country. On investigation, our High Court, on a number of occasions in recent years, has examined in some detail the alleged offence which was the subject of the extradition application and satisfied itself that there was at least an element or colour of an effort to enforce revenue law and accountability. And because there was an element or colour of that in it, they decided that such persons should not be extradited to Britain for fear there would be any attempt on the part of our courts or authorities to enforce British revenue law. I refer to that fact, as Deputy Colley has already referred to it, to show that it has always been the tradition in this and other civilised states that we will not seek to enforce one another's revenue laws and very properly so. We had discussions lasting months in this House about the propriety or otherwise of trying to enforce extradition for political or allegedly political offences. We saw the unhappy and useless compromise the Government arrived at and put before this House, ultimately passed by this House six months ago, and which has never been used on a single occasion since.

Because of the huge volume of representations I have about Article 25 I deeply suspect that there is something similar afoot on this occasion. I might add that some of the huge volume of representations being made to Members of this House, and no doubt to the Minister, are not just from simple, ordinary citizens who, like myself might be excused for having difficulty in interpreting some parts of this convention but from accountants. In some cases at least those accountants are advising their clients that the old exemption for British money here or Irish money over there seems to be at an end. That is the advice being given by financial advisers to individual taxpayers on both sides of the Irish Sea. As Deputy Colley has said, if this practice of many years standing is to come to an end, this country will be the losers in the proportion of approximately four to one because there is four times as much British and Northern money here as there is Twenty-six Counties money in Britain and in the North.

That British and Northern Ireland money which has been here traditionally has been of tremendous benefit to our economy. At a time, unlike the present, when people were prepared to borrow money for productive purposes, the availability of that money to our banking system, building societies and so on was a great boon to us because it constituted a capital inflow of tremendous benefit. For every miserable £ that we get back from England or the North now we lose £4. I wonder even how many of those £s we will get back. I have seen, and I understand my experience is shared by others, the panic caused from the summer onwards by the interpretation accountants have put on this proposal, the panic already has caused a tremendous flurry of activity in the two markets related to this money. I met somebody who went to Belfast for his money and foolishly brought it back in large denomination notes. I am told that quite a number of people have come from Britain in similar circumstances, withdrawn their money from here, bringing it back with them, as they are free to do, in large denomination notes. The amounts involved in some of those transactions were not very large, perhaps in the region of £10,000, £12,000 or £15,000. They are serious enough when they accumulate. The ones that are really serious are those where there is, perhaps, £100,000 or £200,000 involved.

The Minister must be aware that in the past three months or so there has been this panic as a result of Article 25 of this convention. Instead of availing of an earlier opportunity, or even this one, to make a statement about the matter, he leaves Article 25, which is the one causing all the trouble to the very end of his short speech today and devotes merely one paragraph to it. That paragraph to say the least of it is ambiguous.

It is the Minister's duty to spell out at greater length and in greater detail what the net effect of Article 25 is in relation to money held in either of these two jurisdictions by people who are resident in the other jurisdiction. The Minister referring to Article 25 in his speech today said that "it provides for exchange of information where it is material for the purpose of carrying out the provisions of the convention". I would take that to mean that it is material only where tax is actually being paid and where relief from double taxation becomes necessary. I ask the Minister to confirm that that sentence means that where tax is not being paid and is not payable at present, because either the Irish citizen is not resident in the United Kingdom jurisdicton or the United Kingdom citizen is not resident in the Irish jurisdiction where his money is, that tax is not payable and for that reason it is not material for the purpose of carrying out the provisions of the convention and it is therefore not necessary to use the powers in Article 25 to exchange information.

I cannot accept some further ambiguity or further effort to slide over this matter from the Minister. This will have to be spelled out precisely and in detail in this House, if further damage and further mischief of the kind the Minister has done by not making any comment on this article until today is to be avoided. The Minister also said "the new provision would not enable the revenue authorities of one State to seek information from the other revenue authorities which cannot be looked for under the laws or administrative practices of the latter State". That sentence needs to be further analysed. It appears to me to presuppose that exactly the same provisions in relation to this or other similar provisions apply both in the United Kingdom and in Ireland, that the relevant provision here is section 175 (4), that there is a similar provision in Britain and that neither of the revenues will seek to change the practice that exists under section 175 (4). That will have to be spelled out by the Minister. Why it should be necessary to try to drag these assurances from the Minister I do not know, particularly as very considerable damage has been done already which can be measured probably in terms of millions of pounds, and this is the last opportunity that the Minister has to stop this damage getting very much worse by reassuring people who are very frightened and very amazed at what they read in Article 25.

In order that people will not be misled into thinking that this is a storm in a teacup and that the ordinary citizen should not think that there is something frightening about it, I will refer briefly to Article 25. The first paragraph reads:

The competent authorities of the Contracting States shall exchange such information as is necessary for the carrying out of this Convention and of the domestic laws of the Contracting States concerning taxes covered by this Convention insofar as the taxation thereunder is in accordance with this Convention. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than persons (including a Court or administrative body) concerned with the assessment or collection of, or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Convention.

That second sentence means that the information shall be treated as secret and shall not be disclosed to anyone except a court dealing with the case or persons concerned in the assessment, collection or prosecution in respect of or determination of appeals in relation to the taxes, in other words, the Revenue Commissioners. It will be kept secret from everyone except the Revenue Commissioners and the relevant court. There is not much point in providing that it will be secret when the only people that one would not want to know about it are the Revenue Commissioners. It is little wonder in these circumstances that people are frightened and that there has been a serious reaction over the past number of months that the Minister for Finance must have been made aware of, and has steadfastly refused to do anything to prevent that reaction leading to a serious outflow of money from here. The Minister used two sentences today which are veiled and which need to be spelled out in far greater detail. Our attitude to this agreement and to the motion to approve of it will be determined entirely by what the Minister will say in his reply which is something that we will listen to with great interest.

Minister for Finance (Mr. R. Ryan)

Deputy O'Malley put his speech in the correct context when he opened by saying that he would deal only with Article 25, as the rest was rather beyond him. Those are the words used by Deputy O'Malley. With great respect he has clearly pointed out that Article 25 is beyond him too. Therefore it is not necessary for anybody to attach much weight to the words of a man who so frankly admits his inability to understand what it is all about.

Mr. O'Malley

That is typical of the kind of carry on of this Minister over the last few years.

Mr. R. Ryan

Deputy O'Malley then added that about ten people, without counting them accurately, had come to him since last July. A man who cannot count accurately up to ten is not in a position to comment upon a matter which he admits is as intricate as international tax law.

Mr. Colley

The Minister's words are being carefully listened to.

Mr. R. Ryan

I suggest that those who have used so much time of the people to mislead them ought now to take the medicine that they tried to dish out to me. If I quote their own words so be it.

The law of this land as introduced by Fianna Fáil when they were in Government, are the Finance Acts of 1963 and 1965 and confirmed in the Income Tax Act, 1967, section 175 (4). This remains the law of the land and it is not affected by this convention. Section 175 gives the Revenue Commissioners the right to obtain information about payments which are made or credited without deduction of tax. It enables the Revenue Commissioners to obtain from any person carrying on the trade or business of banking information about interest paid or credited without deduction of tax. The exception in respect of that right of the Revenue Commissioners is contained in subsection (4), undoubtedly for the reasons which Deputy Colley and Deputy O'Malley have advanced, because it would not be desirable that deposits in this country belonging to persons in other countries should flow out of this country because of the use of section 175 which is intended for the benefit of the Irish revenue. Subsection (4) provides that where the person who was beneficially entitled to the interest was not ordinarily resident in the State, the person paying or crediting the interest, at the request of the person beneficially entitled to the interest, is not required to include the interest in any returns to the Revenue Commissioners. Any person who has received advice from any quarter, be it bank, accountant or lawyer, to the effect that the adoption of this convention will change this position would be well advised to change his source of advice because there is no basis in law or in fact or in any reasonable interpretation of the laws either of this country or of Britain or of the convention to justify malicious scare-mongering of that kind.

The convention between the Government of Ireland and the Government of the UK is the standard model of the OECD of which Ireland is a member. That membership confers certain obligations and for this country to seek to derogate from those obligations would be tantamount to advertising Ireland as an unhealthy tax haven. While that might lead certain speculators to pump hot money into this country for the purpose of monetary gain, it is not at all certain that at the end of the day Ireland would benefit materially from that sort of situation.

The necessity to revise the double taxation arrangements between Ireland and Britain arose when the British introduced the imputation system in 1973. Since then it has been necessary for us to extend, with the agreement of the British authorities, the existing arrangements, adapting them in the best way possible pending the introduction by us of the Corporation Tax Act. Once that Act went through and once our Capital Gains Tax Act was on the Statute Book it was time to negotiate the new convention in detail. All persons skilled and experienced in tax matters have known for several years that this convention was about to be renegotiated. What is interesting is that while various matters were put forward in representations to the Department of Finance and to the Revenue Commissioners, representations were not received on the question of rents from properties in Ireland and accruing to charities or to pension funds in Britain until after the convention was negotiated in June last. Further studies of the matter disclosed a position which would not be favourable to the Irish economy and to investment here and which, also, would be unfair to British pension trusts which were investing money here.

I am happy to say that the British authorities were well disposed to adjusting the convention in Ireland's interests. In this regard I wish to place on record my appreciation of the speed with which this highly technical matter was renegotiated. We are now in the position of being able to complete these very intricate and involved renegotiations in our efforts to ensure that people in Ireland who have invested money in Britain and vice versa are not taxed doubly.

Listening to the remarks of the Opposition one would suspect that new onerous obligations were being imposed by reason of the convention whereas the position is that the renegotiated convention will operate to the relief of taxpayers by ensuring that they are not caught in a system of double taxation. That is the whole purpose of having these double taxation agreements. There is hardly any reasonable person who believes that an agreement negotiated first in 1926 is entirely relevant to the circumstances of 1976 particularly as there have been a number of differences in the fiscal laws of both countries in the meantime. Deputy Colley asked why the question of wealth tax was not provided for in this convention.

Mr. Colley

I did not ask that. Rather, I commented on why it was not included.

Mr. R. Ryan

Whether it was a query or a comment, I shall deal with it. We are dealing here with the changes that have been necessitated by income and company tax laws and by capital gains tax. Provision is made in section 361 of the Income Tax Act, 1967, for the renegotiation of the convention to take account of such matters. Under section 361 there is no authority for the completion of a convention in respect of wealth tax. As the Deputy will recall, there is a separate provision in the Wealth Tax Act for such a convention.

I would not share with the Deputies opposite the view that Ireland should not move on any fiscal matter until such time as Britain, Australia or some other country take steps in that area. The meaning of independence is that one takes decisions in the best interest of one's own country and does not wait until somebody else moves.

Mr. O'Malley

The trouble is, though, that the Minister is making all the wrong decisions.

Mr. R. Ryan

I have little patience with the attitude that nothing is orthodox or respectable for us until after the relevant provision has been made in Britain. Ireland can be proud of the fact that among the common law countries she was the first to move in an area in which all sensible countries have moved since, that is, the area of wealth tax. The Deputies opposite might like to justify their stand by arguing that we should not have abolished death duties until after they had been abolished in other places. But we made that move ahead of others and as a result we have saved many families from having their property confiscated which was what happened under Fianna Fáil. That was the way they thought we should operate our laws. Properties were confiscated unless people were wise enough and timely enough to receive advice from accountants, solicitors or other people who could point out that in fact death duties were a voluntary tax and paid only by people who were not wise enough to avoid them or who hated their relatives more than they hated the Revenue Commissioners.

Deputy Colley asked where in the text is there a reference to portfolio investors. There is no such reference as such but the phrase "portfolio investors" is a general description for persons holding less than ten per cent of the voting power in a company paying a dividend. It was in that context that I used the phrase. Deputy Colley, too, commented on what he referred to as the adverse features of a credit system where advantage cannot be taken of the 15 per cent tax credit by reason of an insufficient Irish liability. Individuals will be able to get tax credit in respect of the withholding tax. There is provision under Article 22 for relief in such circumstances.

I would like to point out that section 175 of the Income Tax Act, 1967, which gives the Revenue Commissioners certain rights to information in respect of interest payments that are made without deduction of income tax and to interest paid or credited on bank accounts, does not entitle the commissioners to information in respect of interest on building society deposits. I wish to underline that in the hope that it will get as much attention from our friends in the Fourth Estate as they gave to the suggestion from Deputy O'Malley that deposits in building societies could be in some way caught by the operation of the convention or by existing legislation. Section 175 of the 1967 Act does not entitle the Revenue Commissioners to information in respect of deposits in building societies and that position is not affected in any way by this convention. I hope that the remarks of Deputies opposite are not related to the desire or practice of some people here to avoid or evade their liability for payment of Irish tax.

Mr. Colley

Make up your mind— whose side are you on?

Mr. R. Ryan

No, but I suspect that some of those who approached the Deputy may have been people who have deposits outside this country for the purpose of evading tax. Nothing should be said in this Parliament to provide comfort or encouragement to people who are engaged in the evasion of their Irish tax liability. Certainly, we have no obligation to assist other revenue authorities in the collection of their tax; that is an acceptable international convention but all Deputies and all patriotic Irishmen have an obligation to ensure that every person in Ireland who is enjoying the benefits of the Irish community should contribute, as the law requires him to contribute, to the revenue of this country. I am prepared to accept that Deputies opposite have no desire to assist people in the evasion of their Irish tax liability.

Mr. Haughey

If the Minister does not care to deal with this question now I can write to him about it: will there be disclosure in the case of persons outside this country who are holders of Irish national loans?

Mr. R. Ryan

No. As the Deputy knows, there is no exchange of such information at present and no change is being contemplated.

Mr. Haughey

The Minister also said that building society deposits will not be affected?

Mr. R. Ryan

No.

Mr. Colley

The Minister referred to there being no change in the law but since it was not intended that there should be and since all the remarks on this side were directed to practice and procedure, could the Minister now say categorically that there will be no change whatever in the procedure followed by the Revenue Commissioners here or in Britain in regard to the disclosure of information?

Mr. R. Ryan

Yes, that is so; there will be no change. The provision in this convention is comparable to that which existed in the 1949 agreement. The language of the OECD model is used now because that is the language that is internationally applicable but the effective position will remain the same and the procedures will be the same.

Mr. Colley

I am not trying to accuse the Minister of anything but because his mind is engaged in explaining something he may not appreciate the importance of a clear, categorical statement by him that there will be no change whatever in the practice and procedure of the two sets of revenue authorities in relation to disclosure of information. Is he in a position to say that?

Mr. R. Ryan

Yes. The obligations remain the same and the procedures will be similar to those that were previously observed.

Mr. O'Malley

Could the Minister say "Yes", full stop, and leave it at that?

Mr. R. Ryan

It would be totally wrong for any Minister for Finance to assume that Dáil Éireann will not, if it so decides in future, change the law, but I am saying what the effect of this convention is and the procedures will remain as they have been hitherto.

Mr. Colley

Perhaps the Minister when replying overlooked dealing with the question of the references to corporation tax and corporation profits tax and the entering into force provision.

Mr. R. Ryan

I had in fact made a note to reply and I have it here. Under section 173 (1) of the Corporation Tax Act, 1976 the charge to Irish corporation tax on the branch profits of United Kingdom companies does not commence until 6th April 1976. Accordingly, the profits of such companies chargeable to British corporation tax in the case of accounting periods stradling that date will include Irish profits which arose before that date and which were charged to corporation profits tax. It is therefore necessary to include in Article 2 (1) (a) a reference to corporation profits tax to ensure that credit for that tax will be given against British corporation tax chargeable to Irish profits which bore corporation profits tax.

Mr. Colley

Is it not necessary to make a similar reference in Article 28 on the entry into fourth or is it automatically covered as a credit because the liability has existed in the past?

Mr. R. Ryan

Such a reference is not necessary as the matter is transitional.

Mr. Colley

But is the Minister satisfied that there is no need for a similar reference in Article 28?

Mr. R. Ryan

Yes, we are so satisfied.

Mr. Colley

In the light of the Minister's undertaking in regard to there being no change in the procedure relating to the disclosure of information between the two revenue authorities, we do not propose to oppose the motion.

Question put and agreed to.