asked the Minister for Finance if a proposal has been made for the introduction of a community-wide withholding tax in regard to interest payments in the context of the introduction of free movement of capital in 1990; and the implications of such a proposal and of the free movement of capital for the operation of the existing deposit interest retention tax.
Ceisteanna — Questions. Oral Answers. - Withholding Tax Introduction.
8.
No proposal has yet been submitted by the EC Commission to the Council on the question of a Community-wide withholding tax on interest payments.
Council Directive 88/361 EEC, adopted in June last, obliges member states of the European Community to abolish restrictions on movements of capital taking place between persons resident in member states. Under the terms of the directive, Ireland is not required to remove controls on short-term transactions, including the operation of bank accounts abroad, until the end of 1992.
Article 6 of the directive obliges the EC Commission to submit proposals to deal with the tax aspects of capital liberalisation to the Council of Ministers by 31 December 1988. It is not clear at this stage what these proposals may contain.
Many factors will be influential in a fully liberalised capital market and it is not possible at this stage, especially in the absence of proposals from the Commission, to determine what the implications of these will be for the operation of the deposit interest retention tax.
(Limerick East): Would the Minister not agree that the difficulties with which we are presented by the intention to harmonise VAT and excise duties will be added to by the implication of this question? It is quite clear that if there is free movement of capital it will apply to deposit accounts where there is no DIRT tax or its equivalent. We will be faced with changing the deposit interest retention tax on deposit accounts here and I am sure the same will apply in the United Kingdom. Apart from saying that the Commission has made no proposals, has the Minister a proposal on behalf of the Irish Government to protect the revenue in this respect?
I do not think it is necessary at this stage. It would be premature. We could speculate in a lot of ways and deal in hypothetical situations but the fact of the matter is that the Commission has not made any proposals yet. It is expected that it will make one before the end of the year, which is not far away. We will then have to take a careful look at that proposal in the light of its impact on us and on the liberalisation of capital movements in and out of the country. We will just have to wait and see what they propose. I would like to remind the House that whatever proposals are made require unanimity in the Council of Ministers.
The Commission on Taxation analysis has been an international yardstick for tax reform. That commission in their reports dealt with the question of retention taxes. I would ask the Minister to agree that they set out a very well argued case for retention taxes, particularly in relation to deposit interest. I would ask him not to just wait for the European Commission to come up with proposals but to make an argument in favour of such a retention tax based on the Commission on Taxation analysis so that the thinking in the Commission is influenced at a formative stage and our interests in retaining uniformity on retention taxes throughout the Community are protected rather than reacting later if they should ignore our interests.
What the Deputy has said is correct. We already have a retention tax here and the Commission is well aware of our views on such matters. There is also one proposed for Germany and a similar type in operation in the UK and in France. There is no such tax in The Netherlands or in Luxembourg. This is an example of the sort of problems that will be faced by many member states as soon as the proposals are made by the Commission at the end of the year.
(Limerick East): Can the Minister inform us what the estimated yield is for the current tax year from DIRT tax?
Estimated net receipts from DIRT in 1988 amount to about £200 million.
(Limerick East): They are down.
Interest rates are down substantially.