I move amendment No. 48a:
In page 52, before section 44, to insert the following new section:
"44. — The Finance Act, 1983 is hereby amended by the substitution of the following section for section 52:
‘52. —Notwithstanding anything in this Chapter the amount of advance corporation tax which a company shall be liable to pay shall be the lower of the following two amounts:
(a) in respect of distributions made by it in an accounting period ending on or before the 31st day of December, 1984, shall be one half of the amount of advance corporation tax which apart from this section the company would have been liable to pay in respect of those contributions:
Provided that where part of an accounting period falls before the 1st day of January, 1985 and the other part falls in a period beginning on that date this subsection shall apply as if the part ending on the 31st day of December, 1984 and the part beginning on the 1st day of January, 1985 were two separate accounting periods:
(b) in respect of any distribution made by a company after the 8th day of February, 1983 (not being a dividend to which section 49 applies) an amount equal to:
A – (B–C)
where:
Ais the amount of advance corporation tax which would have been payable apart from the provisions of this section;
Bis an amount obtained by applying the rate at which the advance corporation tax is calculated in A to the aggregate amount of all deductions obtained by the company under section 14 of the Corporation Tax Act, 1976, in respect of all accounting periods ended on or before the 31st day of December, 1983;
Cis an amount obtained by applying the rate at which the advance corporation tax is calculated in A to the amount of all distributions made by the company since the 5th day of April, 1976.
Provided that for the purposes of paragraph (b) of this section all distributions made by a company and allowances under section 14 of the Corporation Tax Act, 1976 shall be deemed to be distributions or allowances of the parent company in the case of all its 75 per cent subsidiary companies within the meaning of section 107 of the Corporation Tax Act, 1976, but so that any distributions paid by a company to its said parent company shall be disregarded for the purposes of this proviso.'.".
The purpose of the amendment is to try to alleviate the difficulty that has been created for a number of Irish companies by the imposition of advance corporation tax associated with the dividend payment by these companies where, in particular, they have a very substantial amount of capital allowances due to them in respect of heavy investments that they made in this country in recent years in the not unreasonable belief that the circumstances under which they raised substantial finance at the request of the Government in some cases would be continued to be honoured by the Government and would not be changed, and would not be changed in effect retrospectively. The amendment is a complicated one and I am not going to go through all the detail of it, but the net effect of it would be to enable companies who made very substantial investments here in recent years to utilise in full their capital allowances and not to find themselves in the situation now that they are in effect, paying tax on the double by having to pay advance corporation tax as well as having borne tax already on the profits which they generated last year and this year.
The very fact that this whole problem relates to something with a name like advance corporation tax suggests to many people that it is some form of taxation on enormous companies that do not matter tuppence to the man in the street and, therefore, something like this should be nodded through as being pure and ideologically a good thing and its consequences for the country and the credibility of the country should be ignored. I do not look on it in that fashion. I have a particular interest in this which I do not deny, a personal interest in this limited sense that I was a member of the Government who gave certain assurances to one company in particular and who gave general assurances to companies generally in terms of encouraging them to incur capital investment in this country. I feel that, through no fault of mine or of any of my colleagues in Government, those companies have been misled.
It is not just my view. I can produce for the Minister, if he wants it, a long list of views from stockbrokers and from the representatives of various financial institutions who habitually have invested in this country and who, in all our interests, should continue to invest in this country. They take a very jaundiced view indeed of the arrangements that have been made here in relation to advance corporation tax. Most of the views are expressed on behalf of institutions by stockbrokers. People here like Deputy Mac Giolla and others will make out that if stockbrokers are complaining about something that is being done, therefore it is almost axiomatic that it was the right thing to do, and some of the latter-day socialists in the Labour Party who are still adhering or pretending to adhere to those views say the same thing. That is childish and immature. In this country we want more and more investment and we are frightening off the very people who can give it to us and the very sort of people who have given it to us in the past.
I will take at random the published views of the Life Association of Scotland, a large UK financial institution with heavy investments here. They say: "What concerns us is the retrospective aspect of advance corporation tax and its consequential inhibiting influence on dividends, in effect clawing back something which had been previously given." The Friends Provident Life Office, a similar type of institution, say: "We are very disappointed at the retrospective way in which this tax has been done. The element of retrospection is unfortunate, a retrograde step, leaving the distinct impression on external investors at least, although it applies also to domestic investors, that the republic is an unreliable high risk investment area." Goodbody and Wilkinson, the Dublin stockbrokers, say: "As investment advisers our strongest objection to the ACT legislation is its retrospective effect on companies who have substantial undistributed revenue reserves which have already borne tax and have invested heavily and may now find themselves facing major unbudgeted and retrospective tax outlay." The Stock Exchange, Dublin, generally state that: "ACT has brought a retrospective change in tax. It takes away what had been for good reasons given." Bailey, Gifford and Co., Investment Managers, Edinburgh, state: "We are a firm with funds under management of some £650 million sterling. We have quite sizeable investment in Ireland and we, accordingly, take a close and active interest in developments in your country which might affect companies operating there. We now find that one of the main planks on which our investment case was based has been removed by the introduction of ACT. In the circumstances it appears to us that what has been done is tantamount to retrospective legislation". I have about six more of these but to a great extent they are saying much the same thing in different ways. It is fair to say that it is the universal view of the investment community that this is an unfair, penal and retrospective act of double taxation which has seriously affected the credibility of this country and put in jeopardy future investment by people who were advised by people like these, who control insurance, pension and other major funds of that kind.
I believe this is the first instance of retrospective taxation where taxation already existed. A distasteful aspect of it is the fact that it has introduced this concept of retrospective taxation. It is now to be borne on the distribution of accumulated profits which have been fully charged to tax on the day ACT was introduced. As such, it is in effect a levy of 54 per cent with retrospective effect on past tax profits. I know that in reply the Minister will say that cash did not actually pass in respect of the previous tax profits but we know that those companies were availing, as they were entitled to do, of their capital allowances.
It is not normally the practice to refer in the House to the affairs of an individual company but in the particular circumstances it is appropriate and necessary to refer to the affairs of one large Irish company because on 2 July 1980 I, as Minister for Industry, Commerce and Tourism, with the agreement of the Government and of the Minister for Finance of the day, wrote a letter to the chief executive of Cement-Roadstone Holdings Limited giving them certain assurances in exchange for their assurance that they would undertake without delay certain major investments in the country which they did on the foot of the assurances I gave. They expended over £100 million on one project. That company feel aggrieved. They are entitled to feel aggrieved and many other companies, Irish and foreign, will look with some scepticism, cynicism and considerable reservation in the future at any such assurance given by any member of an Irish Government if this particular procedure is persisted and if this amendment is not accepted by the Minister.
In the course of that letter I said:
I have accepted the National Prices Commission's recommendation that the Carsberg method of calculating depreciation and interest be applied to claims from Irish Cement Limited using a percentage cost to capital of 13 per cent. The working of this methodology will be subject to periodic review by the Commission with an initial review after five years and thereafter three year intervals.
The letter goes on at some length on the question of prices and in particular on the question of this Carsberg methodology. That Carsberg methodology which was approved by the National Prices Commission, which I accepted and the Government approved of, takes into account, in making the calculations on which this agreement was based, the fact that if this company spent £100 million they had corresponding capital allowances and that they would get value for those capital allowances. Does the Minister or anybody seriously think that that company would have invested in the country over £100 million if within a few years of doing so and at the very time they came on stream, the whole basis on which they had financed that project would be swept from under them?
I am not saying anything that the company have not publicly said. They will clearly be in a very difficult position in endeavouring to arrange any such future financing of any major project in the country if they ever intended to undertake it. It is very unlikely that that particular company will ever undertake again in the country anything of that magnitude. There are many other companies who might have under consideration the building of projects which would be of that magnitude or of a greater magnitude. Are they likely to do it in these circumstances in the light of what they have seen happen?
It would be easy, in reply to all this, to paint this as somebody making a case on behalf of large, rich companies and so on. The Minister should face up to the reality, which is that the two largest Irish manufacturing public companies are rapidly disengaging from the country. The largest of them have now more than 70 per cent of their assets invested abroad. They generate 100 per cent of their profits from abroad. The company of which I have spoken, who have very heavy investments here, have a substantial part of their assets abroad and most if not all of their profits are generated from abroad. When we see the views that are taken about their situation in the country by some of the largest indigenous manufacturing companies here it will not be long until other smaller companies begin to take the same view. There was a tradition in the country of honouring agreements, of not changing the law retrospectively and of not changing the rules after companies had committed themselves to a particular course of action. It was one of the strengths up to very recently of the country that that was the situation and that people could be confident that things which might happen to them in certain other countries unexpectedly would not happen here even if there were repeated changes of Government as we have had over the years.
I often recall being able to give assurances in the United States in relation to the provisions of the 1980 Finance Act relating to the new corporation tax rate brought in at that time that in my view it would continue to be honoured by all Irish Governments up to its expiry date of 31 December 2000, because I was able to point to the fact that the earlier incentives, which were introduced in 1958, had been honoured without exception by a long succession of Governments of different political parties from 1958 up to the time I was talking in 1980 and 1981. I could no longer give that assurance. In all honesty I would have to say to companies now: I am very sorry, nothing happened between 1958 and 1983 but it did happen in 1983 and I cannot say that you would have the certainty now you would have enjoyed in the years between 1958 and 1983.
Briefly the effect of this amendment is not to seek to change the principle of what is involved here. It is simply to seek to remove the penal, unfair, retrospective aspect of it and allow companies which have incurred heavy capital expenditure here — and which are not entitled to capital allowances — to continue in that situation until the capital allowances they enjoyed up to last year have run out fully. In the case of some companies with very big capital allowances that may be as much as five, six or seven years. In the case of other companies it may be a question of only six, 12 or 18 months. As far as I can see the amount involved for the Exchequer is negligible. It has often been very difficult to ascertain exactly what net extra money the Exchequer reaps from this in the longer term. But it has had a fairly catastrophic effect on some companies. Because of their experience it has at least equally seriously called into question the validity of a lot of potential investment in this country that is more necessary today than at any other time.