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Dáil Éireann debate -
Thursday, 11 May 1989

Vol. 389 No. 9

Finance Bill, 1989: Committee Stage (Resumed).

Section 64 agreed to.
SECTION 65.
Question proposed: "That section 65 stand part of the Bill."

(Limerick East): Section 65 is the section which introduces self-assessment for capital acquisitions tax and I would like the Minister to outline the procedure involved.

This section of the Bill effectively reenacts section 36 of the Capital Acquisitions Tax Act, 1976. The existing section 36 provides that a person who is accountable for the payment of gift tax or inheritance tax has to deliver without notification a return on which the tax is assessed by the Revenue Commissioners under the provisions of section 39 of that Act. The proposed new section 36 provides that an accountable person now has to deliver without notification a return making assessment of tax on that return and pay the amount of such tax when delivering the return.

I fully subscribe to this idea of self-assessment. It is right to cast the onus on to the taxpayer to make a return in these circumstances, so I have no quibble with the principle of this section. Would the Minister agree with me that there are a considerable number of lay people who would have no idea whether or not they were liable to make a return in any given year in these circumstances and, therefore, it behoves the Revenue Commissioners and the Department of Finance to actually tell people what the law is?

Some people might believe themselves to be exempt if they received a small inheritance of £5,000 or £10,000. Others might wonder what gifts they could or could not receive in the course of a year. The Minister is casting the onus on to the taxpayers. Everyone who has income knows they are liable to make a return for income tax but not everybody knows whether or not they are liable for capital acquisitions tax. Surely the onus is on the State to inform people what the law is. It cannot be presumed that everyone knows what the law is.

I am sure the Deputy will appreciate that the onus is always on the taxpayer to make a return. That is the way it has been in every other area. However, we will help taxpayers to become aware of their liabilities in whatever way we can. I cannot go any further than that.

(Limerick East): A return would show every appreciable gift. It must also show all property comprised in such gift, an estimate of the market value of such property and such particulars as may be relevant to the assessment of tax in respect of such gift. In regard to the estimated market value of property, what is required? Is it a valuation by an auctioneer or valuer, or a statement by a solicitor? What is the nature of the evidence that must be provided there? Could the Minister be more specific about the fourth requirement that such particulars as may be relevant to the assessment of the tax in respect of such gifts should be provided? What is the intent in that all-embracing condition? What else could be relevant other than the value?

The Revenue will normally accept a value whether it is put on by a valuer or a solicitor, so long as it is a reasonable value. What is involved in the wider context is that the person receiving the inheritance or gift might well have got other gifts, small and large, including property, at earlier stages, and they must all be aggregated over a period.

In the case of people who are beneficiaries under a trust and have a life interest, I understand that the trustee is a secondarily accountable person. The donee or the person who receives the interest is primarily accountable and should primarily, as I read the section, make a return. Are trustees of life interests of limited estates bound to make a return as well? In addition to that could the Minister clarify what is the standing of a holder of a life interest to require the trustee to pay capital acquisitions tax, to make a return and handle the taxation of it?

The return can be made by either the trustees or the beneficiary, and the tax is payable by the trust or the trust property.

Out of the trust property?

(Limerick East): To follow on Deputy McDowell's point, who is the accountable person in the case of the 3 per cent discretionary trust tax which has also now been brought within the scope of self-assessment? Is it the beneficiaries of the trust or the person who effectively manages the trust?

The trustees are the people about whom we are answering the question. There are no beneficiaries in the trust.

(Limerick East): There would be at some point. There would be subsequently. Who is the accountable person there?

The trustees.

(Limerick East): Or the nominee of the trustees?

The trustees themselves.

(Limerick East): Each and every trustee?

(Limerick East): Are they all to make returns?

One is sufficient.

(Limerick East): Self-assessment usually works on the basis of a very rigorous inspection of a small sample. Could the Minister outline what are the inspection procedures here and what is the intent of the Revenue Commissioners to ensure that there is no evasion?

The Revenue would choose a limited number of cases at any given time and have their own investigations carried out in a spot check manner.

(Limerick East): How does one spot check gifts?

They use their own judgment as to which ones they should look at and then go after ones they may have reason to go after. First there is a desk audit carried out in the Revenue. Then they decide, on a mixture of cases, what they are going to go after.

(Limerick East): Without commenting on any particular cases, how does the Minister envisage gifts will be spot checked?

I do not think it would be wise for the Revenue to disclose the procedure they will use in cross-checking self-assessment because it would be giving advance notice to the people who would make sure they are not caught. The self-assessment returns will be sent in, a desk audit will be carried out and Revenue will use their own judgment or intuition, or maybe based on information, to decide which returns to check and penalties will be imposed on the people who make the wrong returns.

(Limerick East): Does the same procedure apply for self-assessment and income tax? Effectively the Revenue inspect the documentation which supports the returns. Gifts are not always in liquid form and there may not be documentation to back them up. Are Revenue going to take unto themselves the power to search under the bed or in the back kitchen, to examine the walls to see if paintings are personally autographed by the artist?

No, they are not.

(Limerick East): What are the limitations to the powers of the Revenue in spot checking in cases of liability for capital acquisitions tax in relation to gifts?

The same applies as with self-assessment; the bulk of the cases would be accepted without question.

(Limerick East): I am asking what is the nature——

The Deputy is asking what is the limit to Revenue's powers in the cases they choose to follow up.

(Limerick East): That is right.

They will have powers to inspect property.

(Limerick East): Without a warrant?

Yes, but the bulk of gifts are not taxable anyway.

(Limerick East): Under this section, will the Revenue continue to have the power to enter homes and inspect without a warrant? What is the procedure?

In a reasonable way.

(Limerick East): Every-things is based on the concept that people will act reasonably, but is there anything to prevent a situation arising where a car pulls up outside the door in the morning and somebody announces he is from the Revenue, and says he thinks the person did not file his returns for gift tax and they want to inspect the premises? There must be some kind of procedure.

The Revenue Commissioners are not empowered under this subsection to go on what one might loosely describe as a fishing expedition. The books, records and so on which they may inspect in suitable cases must relate to any property as may, in their opinion, be relevant to the assessment of tax in respect of a gift or an inheritance. If the Revenue Commissioners were seen to be acting unreasonably, there would be a right of appeal against their request to inspect. Deputy McDowell referred last year at this stage of the Finance Bill, 1988, to the reasonable attitude adopted by the capital taxes branch to the collection of tax.

I do not think the law would be any less reasonable in this regard than in relation to captal tax. The Deputy must have experience in this area.

(Limerick East): I do not want to make too much of the matter at this stage, but it seems the Revenue, especially in recent years, have been acquiring the kind of draconian powers that would put the secret police of a South American dictator in an embarrassing position and think their powers were inadequate. The limitation on the powers of the Revenue seem to be that we expect them to act in a reasonable way. Enormous powers are being given to the Revenue under statute and it is not enough to say they will use these powers in a reasonable way.

Section 76 proposes to give them huge powers also. Last year they were given the power of attachment and previous to that powers were given to Revenue sheriffs. The Revenue Commissioners have so many powers now that if they were to be imposed, the tax avoider would feel a very heavy burden. It is not a sufficient answer to say that Revenue have very severe powers of an unspecifed nature but they will act reasonably. We need more information than that.

If a request is made by the Revenue and the person feels it is unreasonable he can refuse the request and then the Revenue would have to go to court to prove their case and to use the enforcement of their powers.

Is the matter not covered between lines 35 and 45 on page 63? Authorised persons who carry out inspections — which I think is what Deputy Noonan is concerned about — seem to be required to act in a reasonable manner and to arrive at reasonable times.

They cannot arrive at 3 a.m. and say it is a reasonable time.

Question put and agreed to.
Section 66 agreed to.
SECTION 67.
Question proposed: "That section 67 stand part of the Bill."

(Limerick East): This section deals with interest rates on late payment of tax. Would the Minister explain the procedure in this regard?

Under the provisions of section 41 of the Capital Acquisitions Tax Act, 1976, no interest is charged on tax where a return is delivered by an accountable person within three months of the valuation date. A further interest-free period of 30 days is allowed for payment of the tax when it is assessed by the Revenue Commissioners.

Since assessments of tax will now have to be made by an accountable person, this maximum interest-free period of four months — three months plus 30 days — is now being applied by this section of the Bill to payments of tax which are made by an accountable person within four months of the valuation date on a return delivered by him. This section of the Bill also enables the Revenue Commissioners to treat conditional or incorrect payments of tax as payments on account of tax.

Question put and agreed to.
Section 68 agreed to.
SECTION 69.
Question proposed: "That section 69 stand part of the Bill."

(Limerick East): This section is an amendment to section 107 of the Finance Act, 1984, and deals with the topic we mentioned some minutes ago, discretionary trust tax. Again, I would like the Minister to read on to the record his explanatory note.

This section of the Bill contains various consequential amendments arising from the fact that the 3 per cent once-off discretionary trust tax, which was imposed as an inheritance tax, is now also subject to mandatory self-assessment by the trustees of the trust.

Question put and agreed to.
SECTION 70.
Question proposed: "That section 70 stand part of the Bill."

(Limerick East): I asked previously in regard to capital acquisitions tax what the Revenue Commissioners would expect in terms of documentary evidence to support a particular valuation of a gift. This section states that penalties in the form of a surcharge are being introduced to penalise accountable persons who underestimate the market value of property in returns for CAT purposes. There is also a table levying a surcharge of percentages of 10, 20, 30 per cent and so on. I will go back to the original question. If such severe penalties of a surcharge nature are being applied in circumstances where a gift is undervalued, what precisely will the Revenue require when the self-assessment returns are made and when a beneficiary values a gift at a certain amount? To what degree will the Revenue look behind the valuation put on the gift by an auctioneer or a solicitor? Already the Minister replied and said that the Revenue will be reasonable and that if a solicitor or an auctioneer puts in a valuation that will be accepted.

If it is reasonable.

(Limerick East): If that is the case why do we need section 70 which is quite severe?

If the valuation is unreasonable they have to get in behind it. They seemed to be way out of line.

(Limerick East): If property which is transferred to a son is seen to be way out of line with property in the same street, the Revenue have to look behind it, but what will they be looking for? Will they appoint their own valuer?

They have their own valuers. They are not used but they are available.

(Limerick East): With respect, the Minister is very short on information this morning. He is giving me monosyllabic replies and I would like him to be more forthcoming. If somebody puts in a valuation and the Revenue think it is an undervaluation but if the valuation put in by the beneficiary is backed up by a statement from the auctioneer or valuer and the Revenue decided to look behind it, what is the procedure?

They put their own valuer in and there is an appeals mechanism after that.

(Limerick East): Is there an appeals mechanism to the Circuit Court then?

(Limerick East): And it is only at that point, after the appeals system has run its course that there is any question of surcharge?

That is right.

(Limerick East): Is there a subsequent appeal against the surcharge?

(Limerick East): That is the cut-off point?

Supposing I am left a painting, a Yeats for instance, and I believe it is worth £10,000, not thinking much of it, and it transpires to be worth £40,000, as I read this section there is no element of culpability in it; it is just a simple mathematical formula — either one is liable to the penalty or one is not. Is there any element of innocent error? Does the surcharge apply where there is innocent error, as a matter of law? It seems to me that it does. Is that not a very draconian rule whereby if one is honestly wrong in the valuation of a gift one is liable for a surcharge?

When an accountable person delivers a return that shows a valuation of an asset which he genuinely believes to be correct but which, on subsequent investigation, including possibly an appeal hearing before the property arbitrator or the appeals commissioners, proves to be a serious under-evaluation — though it is difficult to envisage such a situation arising innocently — what happens is that the Revenue Commissioners have power under section 44 (4) of the Capital Acquisitions Tax Act, 1976 to compromise the surcharge which under subsection (2) of the draft section is treated as tax on such terms as they might decide, including writing off the surcharge.

If one had an innocent under-evaluation, the Revenue Commissioners could compromise the surcharge?

That is right.

But as a matter of law it is due. It is a matter of grace for the Revenue Commissioners to compromise it?

Yes, in bona fide cases.

What the Minister is saying is that somebody who innocently undervalues something relies on the grace of the Revenue Commissioners to let him off the penalty, and has no right of appeal.

There is a right of appeal in law against the valuation that the Revenue Commissioners subsequently make.

I know. On appeal the higher value is established and the person is then liable to this surcharge, is that not right?

Will the Minister put in a provision in this Bill on Report Stage, saying that where the taxpayer can establish that the error was bona fide, he can as of right be excused from the penalty? If I relied on a valuer or on an antiques dealer to tell me what an item was worth and this opinion was found to be wrong, as of right I am entitled not to pay a penalty. I do not see that I should have to go on my knees to the Revenue Commissioners to persuade them. The onus of proof could be on the taxpayer to show that there was a bona fide error on his part but if the taxpayer discharges that onus of proof he should as a matter of right be excused from the penalty. Will the Minister consider including on Report Stage a proviso to that effect?

There has to be serious valuation and the problem described by Deputy McDowell only arises where there is a difference of over 50 per cent in the valuation. I will consider the complications and the practicalities of what the Deputy suggests between now and Report Stage.

The Revenue Commissioners are on thin ice anyway, in imposing penalties at all. The courts have been very good to them so far, but some day somebody will come up with a case which will make the whole penalties structure collapse because it will be clear that an innocent person was subject to a penalty in circumstances where it was wrong to impose it.

The courts are probably good to them because they have not appeared before the courts too often and because the Revenue Commissioners apply a reasonable attitude especially in relation to works of art——

They are reasonable, I accept that.

——where there can be wide divergences of opinion as to what a piece of art is worth. However, I will have a look at it between now and Report Stage.

They were not reasonable in relation to the residential property tax.

But you would not blame them, would you?

Question put and agreed to.
SECTION 71.
Question proposed: "That section 71 stand part of the Bill."

It is proposed to extend the definition of child to include an adopted person. In relation to the status of children legislation, should it also include children born out of wedlock?

They are already included in a previous Finance Act.

And the adopted children were not?

The adopted children were.

Question put and agreed to.
SECTION 72.
Question proposed: "That section 72 stand part of the Bill."

(Limerick East): This is the section that in the case of the capital acquisitions tax makes the donor a secondary accountable person for gift tax.

That is right.

(Limerick East): Sorry, this section makes the door a secondary accountable person for inheritance tax purposes. What are the limitations on that? Obviously the inheritance must take place before the date of the death of the disponer.

You cannot do that.

The disponer is at present a secondary accountable person for the payment of gift tax. This section now makes the disponer a secondary accountable person for payment of inheritance tax provided the date of the disposition is a date on or after 1 May 1989 and the inheritance is taken on or before the disponer's death.

(Limerick East): I do not quite follow that. Could the Minister expand on it? In what circumstances does he envisage that arising?

The case where the amendment would apply is where X settles in his lifetime property on Y for life, with the remainder to Z absolutely. On Y's death, Z takes an inheritance from X, the tax on which is the primary liability of Z, but X, if living, will have a secondary liability which has arisen before his death.

(Limerick East): That is all right.

I seek clarification. I understand that the purpose of the section is to make the deceased person's estate also liable for the tax.

That is right.

Should we wander into that without thinking it through carefully and seeking a justification for it? If I die and leave Deputy Noonan half of my estate——

You would not, would you?

You never know.

(Limerick East): One of your Picassos from Corofin.

If I die and leave Deputy Noonan half of my estate and he is primarily accountable for the inheritance tax on that, it is now being said that the money I leave elsewhere and the rest of my estate are liable to pay the tax if he does not pay it. I wonder if that is right. Why should my other heirs at law be liable to make up Deputy Noonan's defalcation? I think we should stop personalising it at this stage. I do not see the logic in making the estate of the deceased person liable for the non-payment of tax by some of his heirs at law. I do not see why that is right at all.

The Deputy's executors would already have a secondary liability for tax. If he did not pay, the secondary liability would fall back to him.

The Minister is changing the law.

The simplest parallel is joint and several guarantees in a bank. If four people sign in a joint and several guarantee and three of them default, it falls back on one. This is not unlike that situation.

The Minister is now changing the law and I do not want to hear about the present situation. The Minister is making a deceased person's estate liable for capital acquisitions tax based on a number of things. I would like to see some justification why a deceased person's estate should be liable for tax and why people who have paid their inheritance tax should find their part of the estate being absorbed to pay tax for another person who has defaulted. This is a very far reaching change.

The provision is already there in section 35.

In what sense?

A personal representative has secondary liability for payment of inheritance tax.

The Minister is now changing the law.

I am not changing the law.

Can we take this section out of the Bill? If the Minister is not changing the law I do not see why we need this section.

Let us tease this out. A case where the amendment would apply is where X settles in his lifetime property on Y for life, with remainder to Z absolutely. On Y's death, Z takes an inheritance from X, the tax on which is the primary liability of Z, but X, if living, will have a secondary liability which has arisen before his death. He did not have it beforehand.

I appreciate what the Minister is saying and that explains what he proposes to do but I am asking him to explain why he is doing it? Whether it is X, Y and Z or myself and Deputy Noonan, the same problem arises.

X did not have a liability in that situation beforehand and that is the reason for the section.

That is why I am asking why X's estate should be liable for the inheritance tax payable by Z.

It is not his estate as he is still living.

How could he be still living?

X is still living at the stage we are talking about but he makes a lifetime settlement on Y.

But this is not the case of an inheritance——

It is a case of an inheritance. The inheritance arises on the death of a person with a lifetime interest.

(Limerick East): It arises where arrangements are put in place well before death.

X creates a lifetime interest for Y.

In his life.

The remainder goes to Z. Z gets the remainder from Y. Y dies. Is the Minister saying——

X gives an inheritance to Z.

I thought that Z was deemed to take a transfer of the assets directly from X.

How is it an inheritance?

X is still alive at this stage.

How is it an inheritance?

Because it is taken on the death of Y.

I do not accept this at all. However, I do not want to get into any further arguments. Between now and Report Stage I will investigate it further.

Question put and agreed to.
SECTION 73.
Question proposed: "That section 73 stand part of the Bill."

(Limerick East): I understand that this section will allow returns to be made by telex or FAX provided the Revenue Commissioners agree the form of the return. Will returns be accepted by electronic means?

(Limerick East): Will the Revenue Commissioners issue forms that will have to be transmitted electronically, or will they outline the form of their return which will have to be made?

Is it in a form or on a form?

What is envisaged by the Revenue Commissioners is a computer generated form and, in particular, a self-assessment return form produced by a software package. It is understood that a number of companies are marketing or are considering marketing these packages. The Revenue Commissioners will examine beforehand any draft form produced by these packages when the package is submitted to them for approval by the company concerned. One such package producing a self-assessment return has already been approved by the Revenue Commissioners and any return made by an accountable person using his package will be accepted by them without question.

(Limerick East): I have not examined the section very carefully so I may be asking an obvious question. Will this apply to all returns or is it envisaged that it will apply only to returns on corporate taxation?

It will apply to capital acquisitions tax.

(Limerick East): Will it apply to self-assessment?

It applies to capital acquisitions tax self-assessment.

(Limerick East): Is it confined to that?

(Limerick East): If a software package is available is it acceptable for a company to make its returns of corporation tax electronically or would it be acceptable for a company to make returns on behalf of its employees electronically for income tax purposes? Would it be acceptable for the self-employed to make their self-assessment returns electronically if such a package were available?

Not at present.

(Limerick East): Is there any reason why the section could not be extended to cover other tax returns other than capital acquisition tax?

We are dealing specifically with self-assessment in the section. I know the Deputy wants to know how far we can expand the system to include other areas such as corporation tax and tax in other areas, or does the Deputy want to find out when such a system will be available for the other forms of taxation?

(Limerick East): Capital acquisitions tax seems to me to be a restrictive area to allow for electronic transmission of data, while forms have to be returned manually for other forms of self-assessment. I wonder if this is the start of a new departure which the Revenue Commissioners intend to follow into other areas or is there a specific reason for including it for capital acquisitions tax?

It is a start and the Revenue Commissioners will respond to the demand that is created.

Question put and agreed to.
SECTION 74.

I move amendment No. 56:

In page 68, subsection (1), to delete lines 9 to 12, and substitute the following:

"(b) where, at the date of the disposition,

(i) an interest in possession in—

(I) the property referred to in subparagraph (2) (a), or

(II) the shares referred to in subparagraph (2) (b),

as the case may be, is limited to the disponer under the disposition, and

(ii) such property is not, or such shares are not, property consisting of the appropriate part of property, within the meaning of section 5 (5), on which is charged or secured an annuity or other annual right limited to cease on the death of the disponer,

the period of five years ending on the coming to an end of that interest,".

The purpose of this amendment is to ensure that relief under paragraph 9 of Part I of the Second Schedule to the Capital Acquisitions Tax Act, 1976, commonly called "the favourite nephew relief", is given in respect of the whole of the business assets in a type of gift called "a gift with reservation". The relevant five year period being the five years immediately prior to the date of the gift.

Amendment agreed to.
Question proposed: "That section 74, as amended, stand part of the Bill."

(Limerick East): This section is very near and dear to the hearts and minds of people in rural Ireland. I would like the Minister to explain in detail the changes it is now proposed to make. I understand that this section is being proposed following the Circuit Court decision, south eastern circuit, by Judge Sheridan, in the case of AE versus the Revenue Commissioners in 1983. Effectively, this is an amendment to paragraph 9 of Part I of the Second Schedule to the Capital Acquisitions Tax Act, 1976 which deems a nephew or niece to be the child of the disponer for the purposes of computing a gift or inheritance of certain business assets. Quite frequently, the favourite nephew or niece has been living on the farm for some time or for all of their lives. In some cases they are either partially, substantially or totally running the farm. Very often it is a matter of dispute whether the favourite nephew or niece comes within the terms of paragraph 9 of the 1976 Act.

I presume it is the intention of the Minister to make very clear the circumstances in which a nephew or niece is deemed to be a favourite nephew or niece and is treated in the same way as a son or daughter for capital acquisition tax purposes. This is not an esoteric area of revenue collection similar to the ones we have been dealing with which are matters for tax experts and accountants but rather one which is a source of concern for many people who know very little about tax. I would like the Minister to spell it out in the greatest detail possible and to put it on the record so that it will be widely available not only to Deputies in this House but to the many people who find themselves in this position or who envisage finding themselves in this position.

A child of a disponer is subject to less onerous gift tax or inheritance tax than a nephew or niece of the disponer. Paragraph 9 of Part I of the Second Schedule to the Capital Acquisitions Tax Act, 1976, provides that a nephew or niece of a disponer is to be treated as a child of the disponer in respect of a gift or an inheritance comprising business assets, but only if the nephew or niece has worked substantially on a full time basis for the disponer in the five years ending on the date of the gift or inheritance. This concession is being retained, and it is being extended by this section of the Bill to gifts and inheritances taken by a nephew or niece on the expiration of a limited interest created by the disponer. The proposed basis now for the relief is that the nephew or niece must have worked for the disponer for the five years ending on the date the disponer ceases to have a beneficial interest in possession in the business assets. At the same time, the opportunity is being taken, in the context of a self-assessment tax, to set out for the guidiance of a taxpayer the minimum hours of work constituting "working substantially on a full-time basis", which is 24 hours.

Does the Deputy want me to go through the various technical sections?

(Limerick East): Yes. We do have a bit of time.

Paragraph 9 of Part I of the Second Schedule to the Capital Acquisitions Tax Act, 1976, provides broadly that a nephew or niece, who takes a gift or an inheritance of business assets from a disponer who is his or her uncle or aunt, is to be treated as a child of the disponer, and so have a tax-free threshold of £150,000 instead of £20,000 in relation to those assets. The nephew or niece must, however, have worked "substantially on a full-time basis" in carrying on the business of the disponer in the five years ending on the date of the gift or the date of the inheritance.

This paragraph 9 has been criticised by the appeal commissioners and by the courts for its lack of clarity, and they have tended to construe "working substantially on a full-time basis" on a very liberal basis, equating it with doing all the work that is necessary. For example, a Garda sergeant has been held to be working substantially on a full time basis in his aunt's licensed premises 30 miles from his home.

On the other hand, the relief does not apply to trusts of business assets even though a nephew might have been working for his uncle in the business for many years prior to his uncle settling the business assets on trust. For example, if an uncle by will settles business assets in 1975 on trust for his wife for life, with the remainder absolutely to his nephew who has worked in the business since 1965, the nephew takes an inheritance from his uncle of the business assets on the wife's death, in, say, 1985, but the relief does not apply because the nephew has not been working for his uncle, who was dead, in the five years prior to 1985.

This section of the Bill therefore redrafts the relevant paragraph 9, and in redrafting the paragraph, the criterion for the relief is that the nephew or niece must have been working for the disponer in the five years preceding the date on which the disponer's beneficial interest ceases in the business assets.

Subsection (1) of the Bill sets out the amended paragraph 9. Subsection (2) of the Bill sets out the date on which the amendment will take effect, that is, as respects gifts and inheritances taken on or after 1 May 1989. With regard to the amended paragraph 9, subparagraph (1) is a definitions provision.

(Limerick East): Does the question of pay come into it?

Let me give the Deputy a bit more information first. Subparagraph (2) is the substantive provision which uses the more accurate description of "a child of a brother or a sister" for "the nephew or niece". It also distinguishes between work done by the nephew or niece for the disponer whose business is either unincorporated or corporated.

For the purpose of computing tax on a gift or an inheritance, a nephew or niece of a disponer shall be deemed to be the child of that disponer (a) where the nephew or niece has worked substantially on a full time basis for the disponer for the relevent five year period in carrying on, or in assisting in carrying on, the trade, business or profession of the disponer, and the gift or inheritance consists of property which was used in connection with that business, trade or profession, (b) where the nephew or niece has worked substantially on a full time basis, for a company "owned" by the disponer, for the relevant five year period in carrying on, or in assisting in carrying on, the trade, business or profession of the company, and the gift or inheritance consists of shares in that company.

Subparagraph (3) sets out minimum conditions which constitute "working substantially on a full-time basis". It concentrates on the work done by a nephew or niece for the relevant disponer or company, and ignores any other work of the nephew or niece. The nephew or niece may well have other employments which are not taken into account. The subparagraph defines when a person is not working substantially on a full time basis, which under subparagraph (2) refers to the relevant five year period.

The first requirement is that the nephew or niece must be over 15 years at the start of the relevant five year period. A child of school-going age cannot in any sense be deemed to be a full time employee. The second requirement is that, where the business is owned directly by a disponer, the nephew or niece must have worked either a minimum of 24 hours a week for the disponer, at the disponer's place of business, or a minimum of 15 hours a week for the disponer, at the disponer's place of business, where the business of the disponer is carried on exclusively by the disponer, his wife and the nephew or niece involved.

(Limerick East): Many Deputies will have come across favourite nephews and nieces in accordance with the terms of the section. Usually there is a small business or farm involved and the nephew or niece will have worked more or less without pay running the business or farm for an uncle or aunt. In the case of a niece quite frequently she is involved in looking after an invalided relative, and aunt or an uncle. The public perception of “favourite nephew or niece” is a person who dedicates his or her time and is not rewarded, is not on a wage or salary. What is the Minister's attitude to them? It seems to me that what the Minister is suggesting here, particularly in relation to companies, is that one need not necessarily be any kind of favourite nephew or niece, one could be an employee of an uncle or aunt for five years, be receiving a very good salary and working 24 hours per week minimum in order to be deemed a favourite nephew of niece.

The stress of the section seems to be towards the work input which the nephew or niece puts into the farm, the business or the company rather than a special relationship that may exist between the relatives involved. Is the Minister moving away from the original intent of the concession which was given to nephews and nieces because they were favourite nephews and nieces and had shown favouritism towards the uncle or aunt by, effectively, sacrificing part of their lives to look after the interests of that uncle or aunt, whether that meant looking after a farm, a pub or an invalided relative?

We are talking about very small businesses and 15 hours per week is the qualifying period. The person does not have to be on a salary.

(Limerick East): My question was the other way around.

We are not moving away from the original intention.

(Limerick East): My concept of the favourite nephew or niece exception was that the nephew or niece in one way or another had made a sacrifice. I am talking about the kind of sacrifice which would be normal for a son or daughter to make. Consequently, for inheritance tax purposes that nephew or niece would be treated as a son or daughter but I do not think it was envisaged that a nephew working full time for a very good salary in the uncle's company for five years prior to the death of his uncle would benefit from this provision.

They benefit, and always did.

(Limerick East): It may be the good-for-nothing nephew nobody else would hire who is taken on by an uncle and paid a full salary. Will that person be treated as a favourite nephew or niece?

He always was.

(Limerick East): And will continue to be?

(Limerick East): Will the Minister justify the 15 years of age commencement date? The section states that one cannot be deemed to be a favourite nephew or niece until one has reached the age of 15 years. Consequently, between 15 years and 20 years will be the relevant years. There are circumstances where it is clear that the uncle and the aunt-in-law will remain childless and they take in a nephew with the full intent of transferring the farm or the small business to the nephew. An arrangement is put in place with the agreement of the relatives. It will be very harsh if, on the death of the uncle, when the nephew is 17 years or 18 years, he will not be treated as a favourite nephew. If the conditions of eligibility are tied firmly into the work contribution made by a nephew or niece — any person under 15 years of age cannot be deemed to have made a work contribution — it will be quite harsh. I should like to ask the Minister to have another look at the age limit. I accept the explanations the Minister has given.

The normal school leaving age of 15 years was chosen.

(Limerick East): The public perception of this provision was that this was the human face of the Revenue and bringing Revenue law in accordance with the type of family arrangements which people made in certain circumstances. Certainly, in rural Ireland bringing in a nephew with the full intent of him succeeding and carrying on the family farm to the next generation is an arrangement that should be caught within the terms of the concession. The limitation of 15 years of age should be reconsidered by the Minister between now and Report Stage. I am sure he understands what I am getting at. I suggest that he introduce a mechanism to remove that age limitation in the circumstances I have outlined.

I will look at this matter between now and Report Stage. I am familiar with the type of circumstances referred to by Deputy Noonan. I am aware of cases where children have gone to live with an aunt or uncle from the age of 9 or 10, looked after them very well and ran for messages for them but many aunts and uncles died before those children reached 15 years. I accept that if a death occurs a few years after the young person reaches 15 years it will distort the intention of the aunt or uncle. I will look at this provision again.

(Limerick East): I take it that this provision includes nephews and nieces by adoption.

(Limerick East): What is the position of illegitimate children, where it can be proved that the natural uncle or aunt is involved? Such circumstances arise in rural Ireland.

They are covered.

Question put and agreed to.
SECTION 75.
Question proposed: "That section 75 stand part of the Bill."

(Limerick East): Will the Minister give a brief explanation of this section?

Section 60 of the Finance Act, 1985, provides a concession in relation to the use of certain insurance policies, for the payment of inheritance tax arising on the death of a person, by exempting from such tax the proceeds of a qualifying insurance policy which are payable on his death and which are utilised for the payment of that tax. The proceeds of any qualifying insurance policy taken out by an insured person are exempt from inheritance tax in so far as such proceeds are used to pay the inheritance tax arising on the insured person's death, or within a year of his death, under dispositions made by him. Any part of the proceeds not so used is liable to inheritance tax, as an inheritance taken a day later. The premiums on policies which attract relief under this section 60 do not qualify for income tax relief.

It has been represented to the Revenue Commissioners that, since inheritances between spouses are exempt from inheritance tax under section 59 of the Finance Act, 1985, and accordingly since often, in the husband and wife situation, inheritance tax effectively arises only on the death of the survivor of them, the section 60 relief should be extended to policies taken out on the joint lives of the husband and wife, and payable on the death of the survivor. This section of the Bill is intended to accomplish this, and does so by defining "insured" to mean an individual, or to mean, in the husband and wife situation envisaged, the survivor of the husband and wife.

However, provision has also to be made, in the case of these policies payable on the death of the survivor, for the event of the simultaneous deaths of both spouses, for example, where both of them die in an accident and it is uncertain which of them survived the other. The proposed amendment will have effect from the date of the passing of this Bill.

Question put and agreed to.

We now move on to amendment No. 57 in the name of the Minister. This amendment is in Part V of the Bill on which we have an agreement as to time — it will have to conclude by 12 noon. In documentation I have here it appears as referring to section 76, but it is in Part V.

(Limerick East): I do not have any great difficulty with the Minister's amendment but I want to ask if we can proceed, in spite of the time motion, to the next section if we dispose of this amendment before 12 p.m.

If the Deputy will bear with me, I want to ask the Minister to formally move his amendment.

NEW SECTION.

I move amendment No. 57:

In page 70, before section 76, but in Part V, to insert the following new section:

"76.—(1) In this section `specified collective investment undertaking' and `unit' have, respectively, the same meanings as they have in section 17.

(2) Where any unit of a specified collective investment undertaking is comprised in a gift or an inheritance, then such unit—

(a) shall be exempt from tax, and

(b) shall not be taken into account in computing tax on any gift or inheritance taken by the donee or successor,

if, but only if, it is shown to the satisfaction of the Commissioners that—

(i) the unit is comprised in the gift or inheritance—

(I) at the date of the gift or at the date of the inheritance; and

(II) at the valuation date;

(ii) at the date of the disposition—

(I) the disponer is neither domiciled nor ordinarily resident in the State; or

(II) the proper law of the disposition is not the law of the State;

and

(iii) at the date of the gift or at the date of the inheritance, the donee or successor is neither domiciled nor ordinarily resident in the State.

(3) This section shall have effect as respects gifts and inheritances taken on or after the date of the passing of this Act.".

Section 76 of the Bill introduces a new basis for taxing the income and gains of collective investment undertakings. These undertakings are unit trusts and also undertakings which may be set up in the State under the European Community Undertakings for Collective Investment and Transferable Securities Regulations 1989. These regulations have been made to give effect to Council Directive 85/611/EEC regarding undertakings for collective investment in transferable securities called UCITS. This amendment introduces a new section 76 to the Bill which proposes to exempt from gift tax and inheritance tax units in any collective investment undertaking in the International Financial Services Centre and Shannon Customs Free Airport provided broadly that the disponer and the beneficiary in relation to these units are foreigners.

The purpose of this section is to encourage investment by foreigners in the International Financial Services Centre and the Shannon Customs Free Airport. The proposed new section will have effect from the date of the passing of the Bill.

Amendment agreed to.

We now move on the Part VI and amendment No. 58 in the name of Deputy McDowell. Amendments Nos. 58a, 58b, 58c, 58d, 58e, 58f, and 59a are alternatives. Therefore, with the agreement of the House amendments Nos. 58, 58a, 58b, 58c, 58d, 58e 58f and 59a may be discussed together for the purposes of debate. Separate questions can be put, but for discussion purposes we will take all the amendments together.

I should like the Chair to put separate questions——

That obtains all the time, Deputy. In respect of any amendments which are taken together for discussion, if the Deputy in whose name the amendment appears requests, the question on each amendment will be put separately.

NEW SECTION.

I move amendment No. 58:

In page 70, before section 76, but in Part VI, to insert the following new section:

"76.—(1) (a) In this section—

`the Acts' means—

(i) the Tax Acts,

(ii) the Capital Gains Tax Acts,

(iii) the Value-Added Tax Act, 1972, and the enactments amending or extending that Act,

(iv) the Capital Acquisitions Tax Act, 1976, and the enactments amending or extending that Act,

(v) Part VI of the Finance Act, 1983, and the enactments amending or extending that Part, and

(vi) the statutes relating to stamp duty,

and any instrument made thereunder;

`business' means any trade, profession or vocation;

`notice' means a notice of claim given by the Revenue Commissioners under the provisions of subsection (6);

`tax' means any tax, duty, levy or charge which, in accordance with the provisions of the Acts, is placed under the care and management of the Revenue Commissioners;

`tax advantage' means—

(i) a reduction, avoidance or deferral of any charge or assessment to tax, including any potential or prospective charge or assessment, or

(ii) a refund of or a payment of an amount of tax, or an increase in an amount of tax, refundable or otherwise payable to a person, including any potential or prospective amount so refundable or payable, arising out of, or by reason of, a transaction, including a transaction where another transaction would not have been undertaken or arranged to achieve the results, or any part of the results, achieved or intended to be achieved by the transaction;

`tax avoidance transaction' has the meaning assigned to it by subsection (2);

`tax consequences' means, in relation to a tax avoidance transaction, such adjustments and acts as may be made and done by the Revenue Commissioners pursuant to subsection (5) in order to withdraw or deny the tax advantage resulting from the tax avoidance transaction;

`transaction' means—

(i) any transaction, action, course of action, course of conduct, scheme, plan or proposal, and

(ii) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable or intended to be enforceable by legal proceedings, and

(iii) any series of or combination of the circumstances referred to in paragraphs (i) and (ii),

whether entered into or arranged by one person or by two or more persons—

(I) whether acting in consort or not, or

(II) whether or not entered into or arranged wholly or partly outside the State, or

(III) whether or not entered into or arranged as part of a larger transaction or in conjuction with any other transaction or transactions.

(2) For the purposes of this section and subject to subsection (3), a transaction is a `tax avoidance transaction' if, having regard to any one or more of the following, that is to say—

(a) the results of the transaction,

(b) its use as a means of achieving those results, and

(c) any other means by which the results or any part of the results could have been achieved,

it gives rise to, or, but for this section, would give rise to, a tax advantage, and

the transaction was not undertaken or arranged primarily for purposes other than to give rise to a tax advantage.

(3) Without prejudice to the generality of subsection (2), a transaction shall not be regarded as a tax avoidance transaction if it appears that it was a bona fide undertaking or arranged other than for the primary purpose of giving rise to a tax advantage.

Provided that the fact that the primary purpose of the transaction could have been achieved by some other transaction which would have given rise to a greater liability to tax, shall not, by itself, be taken as sufficient grounds for holding that the transaction was a tax avoidance transaction.

(4) Where the Revenue Commissioners are of the opinion that a transaction is a tax avoidance transaction within the meaning of this section, it shall be lawful for them to serve on any person who in their opinion has obtained a tax advantage by virtue of the transaction a notice of claim (in this section referred to as `a notice') setting out their claim.

A notice served under this section shall also set out:

(a) the tax advantage which they consider arises, or which, but for this section, would arise, from the transaction,

(b) the tax consequences which they consider would arise in respect of the transaction if their opinion were to become final and conclusive in accordance with subsection (8), and

(c) the amount of any relief from double taxation which they would propose to give to any person in accordance with the provisions of this section.

The matters set out at (a), (b) and (c) above are referred to in this section as `consequential claims'.

(5) A notice served by the Revenue Commissioners under this section shall unless it is contested by the person upon whom it is served, be declared to be admitted by such person.

(6) Where a person is served with a notice under this section, he may by counter-notice in writing contest the claim any or all of the consequential claims set out in the said notice, such counter-notice to be served not later than 30 days after the service of the notice upon such person.

(7) Where a counter-notice is served pursuant to subsection (6) hereof, the notice and counter-notice shall be laid before the Appeal Commissioners for the determination of any issues arising thereon by the person serving the counter-notice.

(8) Where a notice is served and is deemed to be admitted pursuant to subsection (5) of this section, the matter set out in the notice including the claim and any consequential claims shall, as against the person upon whom the notice has been served be deemed to have been adjudicated against such person finally and conclusively.

(9) The Revenue Commissioners may, at any time, amend, add to or withdraw any matter specified or described in a notice by giving notice (hereafter in this subsection referred to as the `notice of amendment') in writing of the amendment, addition or withdrawal to each and every person affected thereby, in so far as the person is so affected, and the foregoing provisions of this section shall apply in all respects as if the notice of amendment were a notice and any matter specified or described in the notice of amendment were specified or described in a notice.

Provided that no such amendment, addition or withdrawal may be made so as to set aside or alter any matter which has become final and conclusive on the determination of an issue made with regard to that matter under subsection (8).

(10) The Appeal Commissioners shall hear and determine an issue laid before them under subsection (7) as if it were an appeal against an assessment to income tax and, subject to subsection (9), all the provisions of the Income Tax Act, 1967, relating to the rehearing of an appeal and the statement of a case for the opinion of the High Court on a point of law shall apply accordingly with any necessary modifications.

(11) In determining any issue between the Revenue Commissioners and any person in relation to any matter arising on a notice or counter-notice, the Revenue Commissioners shall have regard to the provisions of this section but the onus shall be on the person who has served the counter-notice to satisfy the Appeal Commissioners that the claim or consequential claim set out in the notice served on him is wrong in any respect.

(12) In determining any issue laid before them pursuant to subsection (7) of this section, the Appeal Commissioners and where appropriate the Circuit Court and the High Court shall have regard to—

(I) the form of that transaction,

(II) the substance of that transaction,

(III) the substance of any other transaction or transactions which that transaction may reasonably be regarded as being directly or indirectly related to or connected with, and

(IV) the final outcome and result of that transaction and any combination of those other transactions which are so related or connected.

(13) Where pursuant to subsection (4) the Revenue Commissioners form the opinion that a transaction is a tax avoidance transaction and, pursuant to that opinion, notices are to be given under subsection (5) to two or more persons, any obligation on the Revenue Commissioners to maintain secreacy or any other restriction upon the disclosure of information by the Revenue Commissioners shall not apply with respect to the giving of the notices as aforesaid or to the performance of any acts or the discharge of any functions authorised by this section to be performed or discharged by them or to the performance of any act or the discharge of any functions, including any act or function in relation to a determination made under subsection (10), which is directly or indirectly related to the acts or functions so authorised.

(14) The Revenue Commissioners may nominate any of their officers to perform any acts and discharge any functions, including the forming of an opinion, authorised by this section to be performed or discharged by the Revenue Commissioners and references in this section to the Revenue Commissioners shall, with any necessary modifications, be construed as including references to an officer so nominated.

(15) This section shall apply as respects any transaction where the whole or any part of the transaction is undertaken or arranged on or after the 25th day of January, 1989, and as respects any transaction undertaken or arranged wholly before that date in so far as it gives rise to, or would, but for this section, give rise to—

(a) a reduction, avoidance or deferral of any charge or assessment of tax, or part thereof, where the charge or assessment would otherwise first arise on a date, or

(b) a refund or a payment of an amount, or of an increase in an amount, of tax, or part thereof, refundable or otherwise payable to a person where that amount, or increase in the amount, would otherwise become first so refundable or otherwise payable to the person on a date,

which could not fall earlier than the said 25th day of January, 1989, as the case may be, but no notice shall be served in relation to any transaction which appears to have been undertaken or arranged earlier than 1st January, 1985.

(16) The liabilities of any person to pay tax as finally determined by the Appeal Commissioners or the Circuit Court pursuant to the provisions of these sections, or as deemed to have been so determined, shall for all purposes be deemed to be liabilities imposed by law and all remedies, penalties and liabilities for interest shall have application accordingly.".

There has been some degree of public controversy about this Part of the Bill but in general terms I would not say there is huge public disquiet with the principle. Maybe there is a degree of complacency about what is in the Minister's proposal and it deserves close scrutiny by any self-respecting Legislature when the Minister comes before the Dáil in circumstances like this with such a far-reaching change. That is not to say it is a worthwhile change in principle.

The first thing I want to say about tax avoidance generalised provisions of this kind is that I am not against them in principle, but just because we are not against them in principle does not mean we should accept the first one that comes our way. That is what worries me about the draft put forward by the Minister. I do not think it is a very well drafted section. I know, on reflection, that my amendment suffers from a few defects as well but a provision as far-reaching as this should not have been put together and floated as this has been without a considerable degree of public debate on the implications of each individual ingredient in the Minister's scheme.

To put the matter in context, nobody would disagree with the principle that where it can be shown that any transaction has no independent life of its own and is fundamentally and essentially a tax avoidance transaction, that kind of transaction should be disregarded. A transaction which conforms to that description should be able to be set aside — and that is another issue — to prevent people from simply indulging in totally artificial transactions with a view to tax advantage.

It is very clear that a section such as this is bound to have a prophylactic effect as opposed to an effect in use. It is bound to have the consequence that people will go to accountants with schemes and the accountants will say it is not worth the candle to forget about it. An anti-avoidance section which works as a sword of Damocles hanging over any particular dubious transaction is bound to have a positive effect and to force professional people and advisers to look to the substance of what is going on and not to spend many midnight hours trying to work their way round things, trying to up-end the law and effectively subvert the law by making it mean things which nobody in their heart of hearts could say it was intended to mean.

There is much to be said for a general provision which has the effect of scaring off tax avoiders from the general area of high artificial transactions which have no independent life of their own. It is only fair for a Legislature to indicate to the advisory professions involved, taxpayers, businessmen and people who have the time, resources and the motivation to spend a lot of time working out tax avoidance schemes, that they should not waste their time if the essence of the transaction is artificial. It is a good idea to scare people off that territory and tell them that those efforts will be fiscally in vain.

That is the principle of putting in place something which has this warning-off effect, and I agree with that. I also agree with the proposition that where you can demonstrate that a particular transaction had no independent life of its own, was devoid of substance and was entirely a construct for tax avoidance purposes you should be able to set it aside. But then — and this is the crunch — what will be the consequences of such a scheme when it is brought into actual legislative form and how do you actually operate it? It is on this point that I fundamentally differ from the Minister.

At first blush my amendment looks very similar to the Minister's section and this is because, to be frank, I have used as much as I can of his phraseology simply in an effort to save myself drafting time. What I propose, instead of the Minister's scheme, is that the Revenue Commissioners should not be put in the position of being judge and jury as far as a tax avoidance transaction is concerned. I contend that they, who obviously have a huge input into the drafting of this section, as they do in relation to all fiscal legislation — and obviously they have a huge interest in getting in the maximum amount of tax in any individual circumstance — should not also be given powers effectively to adjudicate on the meaning of the tax code. That is where I differ fundamentally from the Minister. I think he has gone too far. In this regard it is a predictable excess on the part of the Minister because he is dependent on those who want the law to go too far for the drafting process. I am afraid it is a defect of our system in this House that we do not have a highly qualified taxation drafting service independent of the Revenue Commissioners available to the Legislature. They draw up their own laws and the signs are on it in the Minister's amendment.

What I suggest is wrong with the Minister's amendment and is right in principle with mine — if I may put it bluntly — is that the Minister's amendment is based on giving the Revenue Commissioners effectively a power of adjudication. Both in the Bill, as originally tendered by the Minister to this House, and in the Bill as now proposed to be amended by him, huge efforts have been taken to try to disguise the nature of the Revenue Commissioners' role. What would be in any other layman's language a determination is cast in this provision, as tendered by the Minister in section 76, as an opinion.

As I said on Second Stage, the opinion — and I still think it is a rather daft abuse of language — we are told, in certain circumstances, becomes final and conclusive. What is a final and conclusive opinion? It is still an opinion. But when the opinion, in fact, is given the consequence of determination it can be enforced. Only a determination can become final and conclusive; the opinion cannot. Everyone can have their opinion but a determination which becomes final and conclusive is something which can be enforced. One cannot enforce an opinion; one can enforce a determination.

There would appear to have been huge efforts made by the Attorney General's office in particular to avoid casting the Revenue Commissioners in this matter as a determining body, determining what are the consequences of the law, or adjudicating — to put the judicial flavour on it — as to whether a transaction does or does not fall into one category or another, or fall on one side or another of some line which has been devised by the Dáil.

No matter how the Minister may claim that this Bill is not one which gives the Revenue Commissioners this kind of determination or adjudication function, it still stares out through its provisions, and their substance, as opposed to the exact words used, that that is what was intended and that that is how the thing was originally conceived to be; that the Revenue Commissioners would look at a transaction, would form views about it and that those views themselves would have consequences which become binding. That is the essence of adjudication, that one establishes somebody who looks at a situation, forms intellectual conclusions about it, and that those conclusions have the power of law once they become binding. That is adjudication.

That is why I think the scheme, as proposed by the Minister, is defective as far as the law is concerned and runs into constitutional difficulties. It amounts to a transference of judicial powers to the Revenue Commissioners. Indeed, it amounts to more than judicial powers to the Revenue Commissioners because, if one looks at page 72, lines 19 to 24, one finds there is a power that is never even given to a judge in this country. It is a legislative power, one that is not given even to the Judiciary. It is the concept of determining or forming opinions — if I may use the Minister's language — that a transaction would result directly in a misuse or an abuse of a provision of the law of the State. As I understand it, the law of the State is the law as established by the Houses of the Oireachtas. The function of deciding what is and what is not an abuse of the law of the State, in my view, is one which is not even given to the Judiciary. They do not sit in the Supreme Court and say that the law should be this, or the law should be that and that to use the law this way or that way is to abuse it.

The whole concept of common law is that the law is certain. People operate under the law as a matter of certainty and a thing is either lawful or unlawful but it is not something which is morally wrong because it amounts to an abuse of the law. That concept is not known in Irish law. To give to anybody, whether by way of statute or the Constitution, the right to determine what the law actually means, what was its purpose at the time of its enactment, and then give that body the right to form conclusions based on judgments of that kind of issue and to change people's rights accordingly is giving them not simply a judicial power but a legislative power.

We sit in this House and consider laws put forward mainly by the Government of the day. What we intend is our business. Even if the Revenue Commissioners draft the laws, even if they know very well that they intend to achieve by the laws — as exemplified yesterday even in regard to that IDA function in relation to certain things — people have very clear opinions on what they want the law to achieve but they do not have the right, nobody has the right, except this House, to decide what it means and what was its intention. Nobody has the right to say that this House made a law which has a certain effect but that, if a person uses it in a particular way, that amounts to an abuse of the power, the right or whatever conferred by this House.

That is a function which cannot be delegated to the Revenue Commissioners and could not, even arguably, be given to judges to say what is a misuse or abuse of the law. Something is lawful or it is not. The notion that it can have abuse or misused consequences or effects seems to me to be an entirely novel concept as far as this House is concerned. I know there have been precedents before but it still does not mean that it is right. Indeed, just because it has not been challenged before does not mean that on this occasion it will not be challenged.

The alternative view is the one laid out in the amendment I propose as a substitute for the Minister's amendment. It simply describes the process slightly more fairly, that is, that the Revenue Commissioners, as people interested in tax avoidance transactions, can form any view they like. They can then serve on the person involved a notice claiming that it is a tax avoidance transaction, claiming that it should be disregarded, claiming that certain consequences should flow from it. Then it is up to that person to dispute their claim. The claim can go by default and be admitted by that person if he or she does not lift a finger or dispute the Revenue Commissioners' claim.

If there is a claim and a dispute of that claim, if you like, if there is an issue which arises from the Revenue Commissioners making a claim in respect of a transaction and the taxpayer, the person affected, disputing that claim, that issue is the one to be determined, that the determination takes place at the Appeal Commissioners' level, or at Circuit Court level, on appeal, and effectively we call a spade a spade. We say: "Here is one set of people who claim something, another person who disputes their claim and the Appeal Commissioners decide that claim". That was the principle I decided to incorporate in an alternative amendment chiefly because I think that is the constitutional way to achieve more or less the result for which the Minister is going here.

It is the right way to do it. Here is one group of people who think this is a tax avoidance transaction and should therefore have following consequences and here is another man who says it is not and that we should have a body, a tribunal of whatever kind — be it the Appeal Commissioners or the Circuit Court — to decide which is right and which is wrong. The reason I believe that is the right way to approach it is that it does not involve doing violence to language, it does not involve this notion of opinions becoming final and conclusive, it does not involve restricting the grounds on which an appeal can be made to the Appeal Commissioners, it puts the issue fair and square to be decided by an impartial body — the Appeal Commissioners or the Circuit Court — as between the Revenue and the taxpayer. I think that is the right way to go about this. I am not being naive, because I have also suggested in my amendment that the onus of proof in this matter should be cast upon the taxpayer.

People have talked in this debate and outside this House about the unfairness of casting an onus of proof on the taxpayer in respect of tax avoidance transactions. I believe it is fair to cast an onus of proof on the taxpayer. The reason I think it is fair to do that is that most of his motivation is his own private knowledge, most of his own affairs or the reasons he might or might not undertake a transaction are within his own private and secret domain, It is entirely improper to ask the Revenue Commissioners to undertake the onus of proving his motivation or proving in respect of any transaction that his motivation was X or Y. Where you have by statute created an issue to be decided as to what someone's motives were you cannot, except in some very strange form of criminal law, ask the other side in the dispute to satisfy the onus of proof. I think it is fair, where a transaction has the appearance of a tax avoidance transaction, to cast on the person who appears to be the beneficiary of that transaction the onus of explaining it to, say, the Appeal Commissioners or the Revenue Commissioners. That is one feature of the amendment I have put forward.

I have also tried to simplify the concept of tax avoidance transactions because the provisions of subsections (2) and (3) of section 76 are not only complicated but misleading. On first reading you might decide that an ordinary transaction which was carried on by somebody and which was not undertaken primarily to give rise to a tax advantage was not to be regarded as a tax avoidance transaction. If you look at lines 10 to 15 of subsection (3) of the Bill you will notice that it is restricted to people acting in the course of a business with a view to realising profits, and that, therefore, that particular so-called safeguard does not apply in many other areas such as people's private disposal of their own property. A particular fault with the Minister's draft is that he has restricted his main safeguard to business situations. I think that is wrong. The test should be a simple objective test and it should apply to business and non-business situations completely on the same basis.

The other safeguard which is set out in paragraph (b) of subsection (3) is one to which I referred earlier. That does have an entirely legislative concept of deciding what is an abuse or what is a misuse of a relief decided by this House. To allow the Revenue Commissioners to form a view on that is fine but to make their view — which is the long term effect of this section — as to what an abuse or a misuse of the tax code is have the effect of law, which is the bottom line of this transaction, is, in my view, to make them into mini legislators of their own kind.

I take the view that we could have a far simpler and more straightforward tax avoidance transaction definition. It appears to me that the one I set out is a better one, that a tax avoidance transaction shall not be regarded as a tax avoidance transaction if it was bona fide undertaken or arranged other than for the primary purpose of giving rise to a tax advantage. I put in the Minister's proviso after that, the fact that you could have done the same thing in a less tax efficient way would not of itself give rise to the conclusion that it is a tax avoidance transaction.

The proposal I have is that the Revenue Commissioners, if they believe there is a tax avoidance transaction involved, serve a notice on the person concerned claiming that is so and at the same time that the Minister is giving him 30 days to dispute it. That dispute is effectively put before the Appeal Commissioners for determination and the Appeal Commissioners go at it without any limitation as to their powers or the issues that they can determine. They look at the whole transaction and act as judges in relation to it. They apply a simple statutory test and say that is or is not a tax avoidance transaction. Contrast that again with what the Minister is proposing, that is, that the grounds for appeal before the Appeal Commissioners are limited and that the Appeal Commissioners are told they can do this or they cannot do that. Even with the amendments now proposed by the Minister we still have the limitation where the Appeal Commissioners are forced into a particular view and have to adjudicate in a particular blinkered way at the behest of the Revenue Commissioners. I think that is wrong. It possibly raises constitutional issues, but that is another day's work, that the Appeal Commissioners could be forced into determining an issue blinkered and disregarding some of the issues which they might otherwise consider relevant to the point in question.

The other matter I thought should have been dealt with slightly more sensibly is the question of how far back the Revenue Commissioners can go in determining whether a transaction was a tax avoidance transaction. I do not like using individual names but the McGrath case is sufficiently celebrated for all of us to use it in this House. The Minister indicated that it was possible and, indeed, likely, that many others had resorted to the McGrath tax avoidance mechanism, presumably on the same advice or having seen the outcome of that High Court case and that it was fair to look at all those transactions and with respect to them to set aside any consequences which arose from them after the date of the budget. I would not cavil with that. I have never held the view that there is something sacrosanct about retrospection or that the Constitution in some way prevents it. The Constitution does prevent retrospective criminal sanctions and penalties but I do not think it prohibits the Legislature from viewing a set of past circumstances and deciding future consequences from it. I do not think it should be interpreted in that way.

I suggest that the Minister should have put some back limit to the period in respect of which transactions were to be subject to the consequences of this Act. I know he will say that the Revenue Commissioners are reasonable men and perhaps they are, but the time may come when an unreasonable inspector of taxes sees some transaction that was undertaken in the mid-seventies and says that that is the kernel of how this man has got away with so much since and he might decide to set that transaction aside. There must be some certainty in tax affairs.

If the Minister is really concerned with the McGrath case and associated activities he should be quite satisfied with the proposed date that I suggest in subsection (15) of my proposed amendment, that is, that no notice shall be served by the Revenue Commissioners in relation to any transaction which appears to have been undertaken or arranged prior to January 1985. I am not hung up on the date but it struck me that it would bring some certainty into tax laws so that people would be able to say that any transaction after a certain date is open to investigation and those beforehand you can put out of your mind. You do not need to have — which may be the case — extremely scrupulous and worried accountants going back further and examining transactions 15 and 20 years old and advising their clients as to their consequences. It is unfair to ask people to undertake that now especially since we are effectively changing the law. I draw the attention of the House to subsection (11) of my proposal which reads:

In determining any issue between the Revenue Commissioners and any person in relation to any matter arising on a notice or counter-notice, the Appeal Commissioners shall have regard to the provisions of this section but the onus shall be on the person who has served the counter-notice to satisfy the Appeal Commissioners that the claim or consequential claim set out in the notice served on him is wrong in any respect.

I would like it to be understood that I am not suggesting that tax avoidance transactions should be made easier, nor am I suggesting that it should be made more difficult to prove them. What I am suggesting is that the process whereby it is determined that a transaction is a tax avoidance transaction should be an obviously fair one and not one which is designed to warp language and warp the constitutional functions of Legislature, Judiciary, the Appeal Commissioners and the Revenue Commissioners.

There are a number of comments I should like to make on the Minister's amendments but I would like first to hear him on the issues of principle I am now raising. These are in summary: it is all right in principle to have an anti-tax avoidance measure; it is all right in principle to cast the onus of proof on the taxpayer; it is not all right to try to disguise the determination process that happens under his scheme with the Revenue Commissioners as, effectively, just an opinion forming process when you, in fact, make those opinions have the force of law unless they are contested. I am asking the Minister to indicate why, if he is persisting with his own text, it is that he considers it right to limit the grounds of appeal of the Appeal Commissioners in the manner which he is now putting forward even with his proposed amendments. Why is it that he finds himself unwilling to have the Appeal Commissioners, on the basis of their own view of a simple definition of what is a tax avoidance transaction, adjudicate on the issues between the taxpayer and the Revenue Commissioners rather than set them up in a kind of statutory straight-jacket to force them to one conclusion rather than another?

Lastly, I notice from reading the draft which I have put together that there are a number of printing errors in it. I hope they are not being held against the principle of what I am talking about and that the Minister will accept that the printing and drafting errors are not matters which should invalidate the principle of what I am talking about.

(Limerick East): There are sections in Finance Acts, such as section 23 and section 84, the very mention of whose number immediately communicates the meaning and the intent years after the section has been passed and I think section 76 of the 1989 Act will carry the same kind of connotation. Obviously, this section is one which has excited much interest and much argument and led to many submissions. I have gone through many submissions I have received.

Like all sweeping changes, it is quite a complex section, but the intent is simple enough. Up to now we always used to differentiate between tax evasion and tax avoidance. Tax evasion was always wrong because it was illegal and the Revenue Commissioners always went after people who evaded tax. On the other hand, tax avoidance was treated differently. It might not have been considered to be a practice indulged in by better citizens; it might not have been considered to be honourable. However, because it was in accordance with law, it was legal.

What is being proposed here is that tax avoidance should be treated like tax evasion and tax avoidance should no longer be in accordance with law because the Revenue Commissioners may now form an opinion, under section 76 of this Bill when it becomes an Act, that tax avoidance transactions are illegal and, therefore, they cannot be indulged in and are subject to penalties. Therefore, they are out. That is the change which is being proposed and it is a major, profound change.

In the course of many submissions, I have been provided with some judicial comments on the rights of taxpayers to avoid tax. It is interesting to look at some of these judicial opinions, to set the matter in context. I would like to quote first from Lord Clyde, the Inland Revenue Commissioners versus Ayrshire Bullman Motor Services and Richie (14 TC 754, 1929). The quotation is as follows:

No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow — and quite rightly — to take every advantage which is open to it under the taxing statute's for the purpose of depleting the taxpayer's pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.

Effectively, what is being said is that if one acts in accordance with the law one can arrange one's affairs so that one pays the minimum amount of tax in accordance with law, so that tax avoidance is legitimate.

Lord Sumner, Inland Revenue Commissioners versus Fisher's Executors (10 TC 302 1926) stated as follows:

My Lords, the highest authorities have always recognised that the subject is entitled so to arrange his affairs as not to attract taxes imposed by the Crown, so far as he can do so within the law, and that he may legitimately claim the advantage of any express terms or of any omissions that he can find in his favour in taxing Acts. In doing so, he neither comes under liability not incurs blame.

This section is putting that on its head and ensuring that, if the opinion of the Revenue Commissioners is that the transaction is for tax avoidance purposes, he does incur blame and is liable to penalty.

Lord Tomlin, Inland Revenue Commissioners versus the Duke of West-minister, (19TC 490, 1936). I think that these comments are interesting. I am sure that they have been provided to other people as well as myself. I am not a legal expert, but they put the matter in its legal context in the development of legal opinion over the years.

Every man is entitled if he can to order his affairs so as that the tax attracted under the appropriate Act is less that it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.

We come now to 1942. Lord Greene, Lord Howard de Walden, versus the Inland Revenue Commissioners, (25 TC 121, 1942). There is a slight change of mood in this extract:

The section is a penal one, and, whatever its consequences may be, they are intended to be an effective deterrent to practices which the Legislature considers to be against the public interest. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers.

I am sure the Minister likes that one. It supports his line of argument. Later, there is the comment of Lord Simon, Latilla versus the Inland Revenue Commissioners, (25 TC 107, 1943) as follows:

My Lords, of recent years much ingenuity has been expended in certain quarters to devise methods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residence in this country while receiving the equivalent of such income without sharing in the appropriate burden of British taxation. Judicial data may be cited which point out that however elaborate and artificial such methods may be, those who adopt them are "entitled" to do so. There is, of course, no doubt that they are within their legal rights, but that is no reason why their efforts, or those of the professional gentlemen who assist them in the matter, should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship.

Again, you can see a change in attitude there.

Then we come to Lord Upjohn, Revenue Commissioners versus Brebner (43 TC 705, 1967) where it is stated:

No commercial man in his senses is going to carry out commercial transactions except upon the footing of paying the smallest amount of tax involved.

That is an interesting one. It would seem the section envisages that no commercial man in his senses is going to carry out commercial transactions except on foot of paying the smallest amount of tax involved. If it is a legitimate business transaction it seems a person could arrange his affairs in that manner but it is not clear whether the opinion of the Revenue Commissioners will allow a person to do that. Effectively the section proposes that a "catch-all" provision be put in place which will say that if in the opinion of the Revenue Commissioners a certain transaction is for the purpose of tax avoidance, that transaction is illegal and no tax benefit will accrue to the person who has put this arrangement in place. If, on the other hand, the transaction is a legitimate business transaction the primary purpose of which was not tax avoidance even though it reduces tax liability, that is permissible. However, as is clear from the quotations I have put on the record, the difficulty is that the stress all the time over the years right up to today was that if a taxpayer acted in accordance with the Act, with the section, then, no matter now convoluted or ingenious the activity was, it was legitimate. Now we are shifting ground and saying that if somebody acts in a manner which in the opinion of the Revenue Commissioners is a tax avoidance method of procedure, that is illegal. There is no law really other than this section on which the Revenue Commissioners will base their opinion, and this section does not provide grounds for forming the opinion.

I remember in my earliest days as Minister for Justice coming into the House where Deputies hopped up and down and said, "You cannot do that, Minister, that is unconstitutional" and I was intrigued by the concept of constitutionality. I asked a very wise senior civil servant how we can know whether it is constitutional. He said, "Minister, it is very simple. What is constitutional is what the Supreme Court says is constitutional and there is no other test ultimately". I do not mind having my life guided ultimately by the opinion of the Supreme Court, but I do not want to elevate the Revenue Commissioners to the same status. I do not think this section as drafted, which effectively says what is legal is what the Revenue Commissioners consider to be legal, is an appropriate way to proceed in tax law. I know there are rights of appeal here to the Appeals Commissioners in the first instance and subsequently to the Circuit Court, but the appeal is an appeal within the terms of the section. If the Revenue Commissioners can illustrate to the Circuit Court that they have acted in accordance with section 76 then they win the case. It seems they do not have to prove the case on its merits.

The whole question of tax avoidance has concerned legislators for a long time and is of increasing concern in the House. The returns of the tax amnesty were shocking. We were delighted at the success of the amnesty, but the fact that £500 million was out there and was collected from people who had evaded their obligations was a cause of great concern and it focused the attention of many people, particularly in this House, on the efficacy of collection methods, and that was only in the evasion area. We are moving now to the area of avoidance. I can see what has motivated the Minister and I know the case that probably triggered this off, but I am very uneasy that such a major move is being made and that the law will no longer be clear and one can no longer go to the Finance Act and say, "That is legal and that is illegal. If you do this you are evading tax and you are on the wrong side of the law but if you do that you are simply avoiding tax, you are acting in accordance with law and it is a legitimate transaction".

Apart from arguments related to the primacy of Parliament and arguments which would suggest the law should be absolutely clear, enshrined in statute and not a matter of opinion, there are arguments on the section itself which are not of principle but of detail. For example, this could apply to previously non-residential individuals taking up residence here. It seems possible from the wording of the section for an individual who was not previously resident in Ireland, possibly having no previous connection whatsoever with the country, and while still living in another jurisdiction, to have dealt with his affairs in some way which could now be regarded as an avoidance transaction. He could later suffer a charge to Irish taxation arising from the consequences of actions taken in a tax year when he was not even within the scope of Irish taxation. If you take it to its extreme the outcome seems capable of being applied to such an individual retrospectively in relation to events at a time when this measure was not yet properly promulgated in law here. That would have created the kind of uncertainty which would make life more difficult for the development agencies and for the IDA in putting propositions to certain individuals. It would make the task of the Minister for Industry and Commerce in attracting investors to the Custom House Docks site, for example, much more difficult. That needs to be clarified.

I understand that when this section was being drawn up the Revenue Commissioners, the Minister's advisers on finance, looked to Canada rather than to Australia and New Zealand. It has been pointed out to me that a similar approach is being adopted in Canada and it is on the Canadian experience the Minister is drawing. It has also been pointed out to me that when the Canadians suggested this they had a two year period of consultation and submissions were made by interested parties; it was not dropped out of the sky on budget night to be implemented a couple of weeks after the publication of a Finance Bill with no consultation whatsoever.

I would like to come back to this later in the debate, but for the purposes of discussing the matter on the level of principle following Deputy McDowell I have only one thing further to say. If this were balanced by a procedure where advance rulings were available, and not only available but the Revenue Commissioners were statutorily obliged to give advance rulings, many of my fears would be allayed. I am really worried about people who conduct what they consider to be a legitimate business transaction being subsequently caught within the terms of section 76 because in the opinion of the Revenue Commissioners the transaction was primarily a tax avoidance transaction. It is extremely difficult to separate one from the other because it comes down ultimately to the intent of the person who put the transaction in place. The section allows that a person can arrange his affairs in a normal business transaction, one of the consequences of which is a reduction in the liability for tax. That will be done all the time, but it does not allow for somebody arranging their affairs with the primary purpose of tax avoidance. Only the opinion of the Revenue Commissioners can adjudicate between one set of circumstances and the other.

Let us take a hypothetical example for the sake of debate. Businessman A conducts a transaction the tax effect of which is to reduce his liability by £50,000 but the purpose of which is to put a particular business arrangement in place. The consequence was a reduction in tax liability of £50,000. Businessman B feels he is paying too much tax and he puts a similar arrangement in place, not because the exigencies of his business require the transaction but because he wants to reduce his income tax or corporate tax liability. He ends up in a position where his tax liability is reduced by £50,000. How do the Revenue Commissioners adjudicate between circumstance A and circumstance B? They look behind the transaction and try to establish the intent of the people who conducted the transaction. It is waving the stick around dramatically and it will slow people down before they put arrangements in place, but it will create havoc if people involved in legitimate business transactions are notified by the Revenue Commissioners that they may be subject to investigation and penalty under section 76 and that they must be called to order.

I am not happy with the position whereby if, in the opinion of the Revenue Commissioners, a person is avoiding tax, then he is avoiding tax regardless of whether the transaction is in accordance with every other section of every Finance Act ever passed. Because of the opinion of the Revenue Commissioners that the intent was tax avoidance a person is caught within the provisions of section 76. The way around this is statutorily to require the Revenue Commissioners to give advance rulings so that if there is a doubt about a particular transaction the professional advisers to the people involved in the transaction can get a ruling from the Revenue in advance of putting the transaction in place. Then it is a matter of fact rather than opinion. They can act in full knowledge of the consequences. The advance ruling would allay a lot of the fears I and others have.

The Minister may say this would be administratively very difficult and that the Revenue would be weighed down by the number of cases presented to them on the passing of this legislation. A number of cases would be submitted initially but very quickly a type of case law precedent would be established and, once a decision had been made on one category of case, it could be applied administratively to all other similar cases. I do not envisage a situation where in the medium and long term the Revenue Commissioners would have to look behind every proposal put before them to establish its legitimacy so that an advance ruling could be given. The case law, if I may call it that, would build up very quickly and the Revenue would be able to deal with types of transactions rather than individual transactions. The administrative burden would not be very heavy.

I should like the Minister to take this on board. I can see that this section is in line with other sections which have been passed in recent years. The introduction of Revenue sheriffs and the powers of attachment were two very strong measures which were directed against tax evasion. The amnesty was the carrot to go with those two sticks, again directed towards tax evasion. Now we have made a great leap forward and we are moving from evasion to avoidance. We are going after people who are arranging their affairs in accordance with the law to get a tax benefit. One should proceed with caution. Once again I ask the Minister to introduce a section which will oblige the Revenue to give advance rulings in the circumstances of transactions which would be caught by the terms of section 76. That would remove my principled objection, even though I have some more objections to the detail of the section.

I commend the Minister on bringing in legislation dealing with tax avoidance. Tax evasion has been much talked about and I was amazed to hear Deputy Noonan say how surprised and shocked he was that £500 million came in last September. I suppose he was surprised that people responded to such an extent to the amnesty but surely he could not have been surprised that that amount of money was out there. There is a hell of a lot more. After all, he was a Minister in Government for five years. Admittedly he was not the Minister for Finance but he must have been interested in finance since he is now spokesman on it.

(Limerick East): On a point of order, the Deputy is purporting to quote things which I never said. I said it was shocking that so much came in. I did not say I was shocked or surprised.

That is not a point of order, but it is a useful point of information in that the Deputy still regards it as shocking. I raised this issue repeatedly when Deputy Noonan was a member of the Government and I was told there was not a crock of gold out there. Deputy Noonan was then Minister for Justice and it is another indication that Ministers for Justice never really regarded those refusing to pay their taxes as robbers and gangsters.

(Limerick East): The Garda Síochána are not the enforcement agency for taxation.

Ministers for Justice are more interested in shop-lifters or some poor woman not paying her television licence being put in jail. If they had been interested in the real robbers and gangsters they would have known the extent of tax evasion.

(Limerick East): They caught the odd terrorist and bank robber in that time.

The issue of tax avoidance is at last being tackled. It is even bigger than the tax evasion problem. Tax avoidance has become a booming industry during the past decade. The number of accountants and tax consultants has increased enormously. The attractions for civil servants from the Revenue Commission area of the Department of Finance to leave and take up positions in private industry are increasing at a great rate. They are assisting industry in methods of deliberate avoidance, using every word, every phrase and every comma of the legislation to think up schemes deliberately to avoid tax. The Minister is tackling that problem simply by making it illegal deliberately to avoid tax. The tax system is established on the basis of things as they are now and it is being made illegal for companies, businesses or individuals deliberately to put themselves into a position where they might avoid paying tax. It is right that the State should do this. Other countries are well ahead of us since this type of thing is happening all over the world.

The State is entitled when it imposes a tax to pursue and get in that tax without various methods being used to set up avoidance schemes which have nothing to do with the business but are simply separate methods of avoiding taxation. The tax system we have here facilitates this. With each Finance Bill and each budget the tax system becomes more complicated and complex and it becomes easier to devise schemes to avoid taxes. Therefore, I am glad the Minister is taking up this challenge against people who are avoiding tax on a large scale. There is every possibility that what the Minister is doing will be challenged on the basis of constitutionality. I would therefore be anxious that anything in this legislation that would assist a challenge as to constitutionality would be eliminated, and I would be glad to do anything I can to assist in this.

I am not clear on the points of difference between Deputy McDowell's amendment and the Minister's section. I am sure the Minister will clarify some of them in his reply, but I would very much like clarification on Deputy McDowell's points, particularly the one in regard to the Revenue Commissioner's opinion. There seems to be a good argument in regard to opinions which are referred to in a number of places, but I would like to know if there is more than that to Deputy McDowell'a amendment and I would like the Minister to indicate what defects he sees in the amendment before us.

There are so many ways of tax avoidance that one could have a whole book of legislation on it, but the area of company law is one that I think the Minister should talk to his colleague about. It has been talked about here for a number of years. The late Deputy Frank Cluskey, who received accolades from all parties in the House, had this question of company law most at heart when he resigned from the Government and had, I understand, prepared a number of different Bills for company law reform. This whole area needs reforming because it is of great assistance to tax avoiders and tax evaders in the context of setting up various companies, liquidations and other transactions of that nature.

This legislation is a first and will be of great help in putting tax avoiders on the same level as tax evaders by recognising that that sort of tax avoidance is illegal. I am glad to see that recognition in the Bill, but I would like to hear the Minister's comments on the amendment put forward by Deputy McDowell.

I will start with Deputy McDowell's amendment. It is only right that we should appreciate the amount of work which Deputy McDowell has obviously put into his amendment. I am well aware of the effort it requires for busy Deputies to draft complicated amendments and I believe that this situation clearly gives the lie to certain inferences recently on the part of outside interests that this provision would not be adequately debated in the House.

I should also like to say how pleased I am to see the Deputy's proposed amendment contain many of the concepts with which he had difficulty in his Second Stage speech. I am sure this stems from a recognition that I have no desire to put obstacles in the path of genuine business transactions or deny a fair appeal hearing to anybody. I have a strong desire to put an end to the activities of the tax avoider and I take the Deputy's proposed amendment as evidence of the fact that in this we share a common purpose.

The Deputy's proposed amendment is long and detailed. I feel it is not necessary, nor would it be fruitful to go over it in detail or to go into all the technical and other reasons I consider it necessary to proceed with the existing section, subject of course to the amendments which I have tabled myself. I will therefore address only the main issues at this stage.

There has been much criticism lately about the alleged uncertainty for business and investment in the anti-avoidance provisions. It is somewhat ironic and a little bit hard to take that much of this criticism is coming from the general direction of the people who formulated and, in the absence of remedial action, would continue to formulate the avoidance plans which make this section necessary. It is a pity they did not have more regard to the consequences of their actions before now. They have nobody but themselves to blame for bringing that whole area into total disrepute.

Be that as it may, I was conscious of the need to ensure there was no uncertainty in the mind of the genuine businessman or the person making legitimate use of the tax reliefs provided by the Oireachtas. Fot this purpose subsection (3) was inserted in the section. It is a limiting provision on the actions of the Revenue Commissioners designed to give comfort to the genuine taxpayer and to protect the efficacy of reliefs provided by the Oireachtas for the benefit of the community as a whole.

I am sorry that Deputy McDowell saw the subsection as conferring some form of wide ranging powers on the Revenue Commissioners. That was not the intention of the provision and I do not believe that the provision gives such powers to the Revenue Commissioners. The Deputy's proposed alternative to subsection (3) may do a disservice to the needs of reassuring genuine taxpayers, and I fear that the unqualified use of words such as "appears" and "bona fide undertaking" could be used to drive a hole through the section.

On the general point, I am satisfied there is nothing in the section to give any cause for uncertainty to genuine businessmen and investors. The only uncertainty is in the minds of tax planners as to whether their tax avoidance schemes will work. That is an element of uncertainty that I have no problem with.

Another area in which it is alleged by commentators that the section in the Bill is deficient is that it is suggested that it contains only limited appeal procedures. Having regard to the amount of detail on appeals in the section and the painstaking opinion procedure which was introduced to protect the taxpayer, I regard that suggestion as ludicrous. It must be recognised that even in cases of blatant tax avoidance the Revenue Commissioners are precluded from using the section to move against the avoidance until all the appeal processes have been exhausted. Even so, I have had regard to representations and fears in this area and I have tabled amendments to alter the grounds for appealing against the Revenue Commissioners' opinion. The Deputy's proposed amendment, by dismantling many of the procedural references to the conduct of appeals, would, I believe, make the appeals process more uncertain. In particular it is not clear how the Appeal Commissioners or the courts would rule on the Revenue Commissioners' opinion.

That is supposed to be the idea; you do not know how they are going to rule.

The opinion is the mechanism which triggers off the examination of a transaction but nothing happens until it goes through all the procedures including the courts. Far too much weight is being put on the purpose of the opinion. It is just the trigger mechanism and until it is either upheld or struck down no action takes place. I want everybody to be clear about that.

The Deputy's proposed amendment, by dismantling many of the procedural references to the conduct of appeals, would, I believe, make the appeals process more uncertain. In particular it is not clear how the Appeal Commissioners or the courts would rule on the Revenue Commissioners' opinion. It must be remembered that at the time of the hearing of the appeal the Revenue Commissioners would have taken none of the actions described in the notice of the opinion, which they would propose to take to defeat the avoidance. It is also not clear that a tax avoider would not undertake another round of appeals when the Revenue Commissioners take action following a judgment of the Appeal Commissioners or the courts to the effect that a transaction is a tax avoidance transaction. It is not clear from the amendment whether that appeal mechanism would exist at all. The use of appeals procedures to frustrate the payment of tax has a long history. As I have said, I do not propose to dwell on the technical issues in the proposed amendment. I will confine myself to pointing out to Deputy McDowell that, while I am sure it was an oversight in his draft, he has removed the entitlement to relief to double taxation.

It was a mistake.

Finally, the Deputy seeks to impose a limit on the capacity of the section to defeat the effects on future tax payments of tax avoidance schemes completed before budget day. He proposes to exempt tax avoidance schemes completed before 1 January 1985 from the section — I do not know why he picked 1 January 1985. In practice such a proposal might not greatly impact on the effect of the section unless tax avoiders contrive to back-date their schemes. Such an eventuality is not beyond the ingenuity of some tax avoiders. Most other avoiders however have probably escaped with the spoils of their schemes already. What concerns me about the proposal is that it would give the impression that a form of tax avoidance which has consequence for future tax payments is being legitimised by statute.

For years, tax avoiders and their professional advisers have managed to convince themselves, and have made bold attempts at convincing the public, that their activities were acceptable, that simply because they kept within a literal interpretation of the law in avoiding their due share of tax they were doing no harm. While no-one should require a person to conduct his affairs in a way that attracts the minimum tax, neither can the community at large continue to accept a position in which persons artificially contrive to avoid paying their fair share of taxation. The effects of such activities on the ordinary taxpayer, who has no capacity to indulge in tax avoidance, are scarcely different from tax evasion and the purpose of this section is to make them illegal. While I do not believe there is any possibility of the Revenue Commissioners going back to re-open transactions completed many years ago, in the manner suggested here, I do not wish to cloak such transactions in any form of respectability. The sooner the avoider appreciates that his activities are unacceptable the better it will be for everyone.

I will now deal with a few of the other points raised by Deputies. Everybody knows exactly what is going on. The McGrath case, which I do not necessarily want to go into in detail here, came before all the different courts. The Supreme Court ruled on it and quite clearly pointed the finger back to this House to legislate in the area of tax avoidance.

It did not. Can the Minister quote the passage that refers to that?

That is the general interpretation of what they said. They took the view that it was within the law. In other words, as far as they were concerned, in future in every case that came before them they would take the view that if it was within the law that was fine, but they went on further to state where the responsibility rested in relation to tax avoidance. In the UK a different philosophy exists. The matter is before this Legislature so that the House can decide on it.

I have listened with interest to what Deputy Noonan had to say about the opinion of the Revenue Commissioners. He said that the opinion of the Revenue Commissioners is all that matters but that is too fine and too narrow an interpretation. I want to repeat that the opinion is the mechanism that triggers off the hearing at the different stages of appeal of the transaction. It triggers it off to the Appeal Commissioners, the Revenue Commissioners and the courts and no action can be taken by the Revenue Commissioners until that opinion is dealt with at the different stages of appeal.

(Limerick East): Is that not exactly the same as the position whereby somebody is arrested, charged and returned for trial and it is argued that nothing happens until he goes to court?

No, it is not the same in my view but maybe it is the same in the way the Deputy interprets it.

(Limerick East): Being arrested and charged just triggers the procedure.

What is the Deputy suggesting?

(Limerick East): I am suggesting that the Revenue should give advance rulings.

Did the Deputy read the recent court comments on advance rulings? I will come to them later on. A lot has been made of advance rulings being used in Europe and elsewhere. In relation to advance rulings and the questions being posed about the uncertainty for business as regards the International Financial Services Centre or indeed Shannon Free Airport, let me explain the matter clearly on the record of the House. There is a section in the Revenue Commissioners and in the Department of Finance constantly giving advance rulings in relation to the position regarding the Financial Services Centre. Any certificate that is issued contains ten pages of information. It is not new to look for advance rulings and to the present day the Revenue will discuss advance rulings with people but to think that there will be all sorts of scams and schemes is a bit much. People know well what the position is but nevertheless we will deal with advance rulings.

Much comment has been made here about the alleged finality and status of the opinions of the Revenue Commissioners and what opinions they may form for the purpose of section 76. It is clear that some Deputies accord the opinions more significance than is warranted. The opinions to be issued by the Revenue Commissioners are in effect no more than a means of bringing transactions of a doubtful nature into the open and exposing them to scrutiny by the Appeal Commissioners in the courts. The truth of the matter is that the Revenue Commissioners will not be able to act on an opinion until it has been confirmed by the courts and I want to emphasise that fact. Anyone who is dissatisfied by an opinion will be entitled to appeal to the Revenue Commissioners and to the Circuit Court. An appeal to the High Court on a point of law is also available.

The role of the Appeal Commissioners and the Circuit Court must not be understated. Unlike the adversarial role normally taken by the courts, the Appeal Commissioners and the Circuit Court are fact finding tribunals with extensive powers to call witnesses and issue precepts seeking evidence. An appeal by a taxpayer under section 76(7) of the Bill will result in all the circumstances relating to the case being reviewed and considered by the appeals tribunals and, in the light of all the facts made known to them including information which might not have been available to the Revenue Commissioners when formulating their opinion, they will rule on the correctness of that opinion. All the facts and evidence will be available in the appeals procedure. It is against this background that the status of the commissioners' opinion must be measured and it must be obvious that the consequences of the making of an opinion are less than what might appear at first glance.

Claims of uncertainty have been made against the section and there have been claims that it introduces uncertainty. I should stress that other countries have taken action against tax avoidance either through the courts as in the case of countries like the United Kingdom and the United States or legislatively such as in Australia, Canada and New Zealand. On the Continent of Europe the doctrine of the abuse of right has been developed to counter tax avoidance. There is no evidence that these countries suffer any business disadvantage by having laws aimed at tax avoidance. Indeed, it could be said that, by diverting the attention of professional advisers away from tax planning and into more constructive and productive areas, the economies of these countries can only benefit. Nobody would disagree with that. Tax avoidance has become a major industry here. If the amount of expertise and brain power put to work in tax avoidance were diverted to more productive projects, look at the results we could expect. As for claims that some system of advance ruling helps the law to work in these countries, the truth is that such facilities are not as extensive as some commentators would have us believe. There is reason to believe that the facilities are used very little.

In relation to defining a tax avoidance transaction, the essence of a tax avoidance transaction is defined in subsection (2) of the Deputy's amendment as a transaction that was not undertaken primarily to give rise to a tax advantage. However, the definition of a tax avoidance transaction is subject to a new subsection (3) which contains certain exclusions which exempt transactions from being treated as tax avoidance transaction. By virtue of these exclusions a transaction will not be a tax avoidance transaction if it appears to be either a bona fide undertaking or to have been arranged other than for the primary purpose of giving rise to a tax advantage. Because both exclusions are expressed as alternatives the implication of the Deputy's subsection (3) is that a transaction may be a bona fide undertaking and, at the same time, be arranged for the primary purpose of giving a tax advantage. This in effect, negatives the whole section. While I appreciate that the Deputy's amendment may have been drafted in haste and that the scope of the exclusion from section 76 afforded by his proposals may not have been his intention, I must reject the words of the proposed amendment because they are vague and overly loose when read in context.

I have dealt with a fair number of the issues. I take on board Deputy Noonan's suggestion in relation to looking at this again before next Tuesday but I remain to be convinced that a bona fide business person has anything to fear here. When I studied this in 1976 I had fears, and certain aspects have been pointed out to me. I am not in the business of introducing uncertainty into the business environment. Up to now I am satisfied, although I remain open to persuasion, that there is nothing in the Deputy's amendment which is necessary. I have a fair idea of the certainty the business environment needs. It is the tax planners who have the problem. The uncertainty is with them. Up to now they were in a position in which they could sell this type of tax avoidance plan the other way because such plans were working but they are in a different position now and bona fide businesses have nothing to fear.

The Minister's replies have been very lucid and clear but I do not believe the Minister's heart is in what he said. Were the roles reversed the Minister would be working himself into a sweat over here on behalf of the people, opposing the powers being given to the Revenue Commissioners. The Minister referred to decisions of the High Court and so on. If the Minister were on this side of the House he would be putting the opposite viewpoint forcibly on behalf of decent working people trying to earn a living who are being hit for six by a tax regime which is stifling growth. I assure the Minister that there will be votes this morning on a regular basis on behalf of the people. I notice that the Minister for the Environment is here, and he too, if our positions were reversed, would be encouraging the Minister and thumping his desk calling for fair play for the hard pressed workers.

Deputy Mac Giolla put his case very well on behalf of the working people. I agree that the level of taxation is a deterrent to employment. Employers are not taking on people because of it and there is no incentive for people to work. Recently I listened to Marian Finucane's afternoon programme during which she interviewed a widow who described how her husband had taken his own life due to harassment by the Revenue Commissioners. This man was in arrears in tax. He had gone to the Revenue Commissioners to try to sort out his problems but he could not sort them out. His family must carry on without him now. I do not want to be unkind to the Revenue Commissioners as most of them are helpful but the system runs on statistics. The system is computerised and it is an ever-growing process. It reminds me of The Grapes of Warth by John Steinbeck, where the banks and the corporations take over and any poor devil who happens to get in the way is steamrolled out.

We are putting on the Statute Book today strong and extensive powers. There is a great danger in that and it worries me, especially when we hear about one individual dying because of the system in which he could not live. That is only one we have heard of. We have all heard of the Sheriff of Nottingham who had wide powers and could take all their property from people. The Sheriff of Nottingham who was a rough tough man according to the history books would be put in the shade by some of the Revenue sheriffs here. Deputy Mac Giolla may make the point that they were justified in doing what they did but I know for a fact that people have paid money to the Revenue Commissioners, because of fear and intimidation, money that was not owing in many cases. People caught in the system were terrified that their hall door would be driven in with a sledge-hammer and what was inside taken out——

An exaggeration.

I am not exaggerating. We have to have a balance. Legislation can be too all embracing. I feel there should have been ongoing consultation for a considerable period on the proposed powers of section 76 because once it is on the Statute Book, the Revenue Commissioners are able to interpret it to suit themselves and they have all the law enforcement agencies to back them up.

The Minister has talked about the growth of the tax avoidance industry. Let him tell me what sums he is speaking about. Are they in the region of £10 million or many more millions?

It is totally unknown, you can put any estimate on it and nobody will be able to contradict you. Let us look at the return from capital gains tax. The Deputy is as much a man of the world as I am. Will he try to convince me — taking the rate of capital gains to be approximately one-third and no more — that £50 million to £60 million profitable transactions took place over the past 12 months? I do not think he would believe that and neither do I. That is only the figure in one area of tax avoidance.

How was the tax estimated in the McGrath case?

Is the Deputy referring to the specific case or to all the cases allied to it?

The tax involved in the court case decision.

We are not free to discuss anybody's private affairs.

It is correct that you cannot discuss them.

It is fairly public. Would the figure be in the region of £50 million or £60 million?

The McGrath case went to court and was decided upon by the Supreme Court, but the same type of scheme was being sold around the country at a commercial rate. Everybody knew at what price you could buy a similar scheme. Is Deputy Enright, or any sensible Deputy, going to stand up here and say that this House should do nothing about such a situation? They had a Supreme Court decision to back them up and they could go around and get £30,000, £40,000, or £50,000 for the scheme. I do not believe this House would accept we should do nothing about that.

We had the choice of trying to plug one hole but perhaps opening ten others and the Deputy, as a lawyer, is suggesting that we make that choice. If the Deputy considers the interests of the ordinary taxpayer, and if he were sitting where I am sitting, he would form the same impressions I have formed — that we should legislate in the interests of the common good and not alone bring in a general provision but plug all the other schemes as well.

Only three weeks ago we came across a scheme of selling reverse annuities in Molesworth Street. Two guys who came into the country have set up a tax avoidance system. They give you a capital sum and then sell you reverse annuities. For every £50,000 worth of annuities they give you the money to buy, they would get £13,800 from the Exchequer and from the pockets of the taxpayers of this country. We could not stand back and allow these measures to grow. I have been in the Department of Finance a very short time, but I read the newspapers and watch the schemes that are being advertised and I am sure I do not catch them all, but I saw a few in recent times.

It is a question of balancing the resources of the Revenue Commissioners to match this tax avoidance industry. The Revenue Commissioners only find out long after the event. They do not have the resources to match the brainpower of this industry. We are trying to strike a balance between the rights of the taxpayer and the general interests of development while trying to give the Revenue Commissioners sufficient powers, subject to the appeal mechanisms we can build in, to arrest that situation. The Revenue Commissioners are losing the battle every day of the week and we have a duty to strengthen their position. However, it is a question of striking the right balance.

The Minister made a number of points. As regards the McGrath case, any measures taken to plug these loopholes are desirable, essential and necessary, and have my full support.

We are not trying to withhold the figures but they could range from £40 million to £70 million.

Whatever measures are necessary to counteract such schemes would have the support of all on this side of the House. I am aware of the annuity scheme that the Minister referred to. I think the Revenue Commissioners are able to zone in on those people relatively quickly.

On the question of capital gains tax, property values had remained reasonably static and there had not been much upward mobility for a period. That would explain to some extent why there was not a major increase in the income from capital gains tax, but from here on in we should see a sizeable increase in capital gains tax. I am aware that the Revenue Commissioners have a very good system of monitoring business transactions through the Valuation Office and the Adjudication Office, and all the information will be documented.

Earlier the Minister referred to entering the unknown. We have paid out high levels of grants to attract industry — although there may be differences of opinions whether this is desirable. There is a danger in bringing in provisions of this nature that he will make it more difficult for people to come in and set up industry in Ireland. I will give an example. The Minister will remember the questions raised at the time of the takeover of Irish Distillers. A noted gentleman in the financial world queried the tax liabilities that would fall due and he had to head out to north county Dublin to ascertain the exact tax liability.

——to "Dublin Castle North".

The point I am making is that that was a specific narrow liability, but in this instance we are speaking of a broad range of powers over a wide area that the Revenue Commissioners are being given. This provision would lead to many difficulties for, on the one hand, someone setting up a business and on the other for advisers and accountants in the financial world. Section 76 (5) (a) states:

Where the opinion of the Revenue Commissioners that a transaction is a tax avoidance transaction becomes final and conclusive they may, notwithstanding any other provision of the Acts, make all such adjustments and do all such acts as are just and reasonable ... in order that the tax advantage resulting from a tax avoidance transaction shall be withdrawn from or denied to any person concerned.

In relation to the appeals procedure, an appeal will go to the Circuit Court and to the High Court on a point of law only. I do not think it is right that it cannot go one stage further and be heard in the High Court or in the Supreme Court if necessary. Let us be honest about it, in the Circuit Court one judge sits alone with no one to advise him. There are Circuit Court judges who are experts in particular fields, for example, in criminal law, in family law, or on titles. However, I cannot say that every Circuit Court judge is an expert in tax law. This is a highly complex field. While a judge may have a specific interest in this subject, we cannot be certain that every Circuit Court judge has the necessary expertise to make judgments on matters of this nature.

A High Court judge sitting on his own can hear a point of law. If someone takes a case to the Supreme Court, the case will be heard by five judges. A person should have a constitutional right to have his case heard in the High Court or Supreme Court which is the final arbiter. Perhaps the Minister disagrees with me and I will listen to his reply with interest but I think it is a little bit unwise and dangerous to allow a case to go to the High Court on a point of law only. I do not think it is right that the Revenue Commissioners should have a quasi-legislative function in this matter.

I should like to conclude by saying that I hope I am putting forward an objective viewpoint on this matter. Like everybody else I am trying to pay my taxes upfront. I would like to ensure that the ordinary run of the mill taxpayer who works a five day week and pays his tax gets fair play. It is important that this should be the case. The ordinary taxpayer who pays his bills to the Inspector of Taxes is hard pressed and it is our duty to make sure he gets fair play. In giving extensive powers to the Revenue Commissioners we have to be careful that we do not go for the overkill. The danger is that we could run into constitutional problems and provide a disincentive for those who are trying to set up businesses. The Minister is a successful businessman who knows what I am talking about and there is a very real danger that we could go for the overkill.

In the final analysis I ask the Minister to move slowly on this matter. Those powers will still be on the Statute Book long after he and I have left this House. Once on the Statute Book it will be very hard to get them off it. When it was proposed to introduce such powers in Canada, the consultation process went on for a number of years. I am very glad that we are having a debate on this matter this morning but I do not think sufficient thought has gone into this section of the Bill.

I agree with what Deputy Enright has just said. This process is a somewhat artificial one. The Minister came up with this proposal and gave us less than a month to react to it. We have a very adversarial system. It is almost like a criminal trial. It is either guilty or not guilty; and the Minister's text either stands or it does not. There is a confrontational aspect to the procedure we indulge in in this House. I come in with my amendment and the Minister picks holes in it and he sticks by his own. I will say here in parenthesis that it struck me on thinking about the process, in response to those who claim that the real opposition in this country is provided by the Labour Party, that it is noteworthy that they have not opened their vociferous mouths on any issue. I just say that as I am getting lonely over here.

Let me deal with one or two of the points the Minister raised. I believe in simple law, not complex law. The Minister's subsection (3) which is supposed to tighten up a general provision — the text I suggest did not have the equivalent of subsection (3) — is a minefield in itself and is not the great safeguard the Minister suggests because, by implication, it would drive a court or a tribunal in another direction. It is not a great safeguard and I do not think it is half what the Minister makes it out to be.

In the Minister's amendments he has taken some significant steps to roll back from some of the criticism which was addressed to his section. The chief step he has taken is to take out the references to the Revenue Commissioners being satisfied and he has substituted the Revenue Commissioners considering that X and Y is the case. This is done on good legal grounds because referring back to the Offences Against the State Act, 1939, bits of it were struck down when it became known that Ministers had to be satisfied about things and a different phraseology was inserted. A less judicial wording was used to try to save the measure from being struck down.

For reasons I will point out in a few moments, there is a residue of error stuck in this Bill and the Minister has not gone far enough in the concessions he has made. The most significant change is on page 74, line 50 onwards. The Minister is now proposing in amendment No. 58b that the grounds of the appeal should be changed. It is no longer to be the case that the appeal tribunal will have to decide that there are no grounds or insufficient grounds for the Revenue to arrive at their view. Instead, the appeal tribunal will have to arrive at the simple view that they were wrong. That is a step in the right direction because it takes away from the opinion a good deal of the judicial or determination quality I argued it had on Second Stage.

I should like to deal with my proposal. I have put the Revenue Commissioners' initiating trip mechanism, which the Minister described as an opinion, in the form of a claim because that is what it is. An opinion does not start a case; a claim starts a case. That may be described as a lawyer's point but in my view it amounts to a claim made by the Revenue Commissioners because this is a tax avoidance transaction and certain things should follow. A person against whom the claim is made has a right, in the Minister's view and my proposal, to have that adjudicated on. However, there are a number of features involved. There is a large amount of verbiage separating what I have said from the Minister's position, which I find totally wrong. "Tax" is defined as meaning interest or penalty. In other words, a wholly artificial transaction undertaken to avoid interest or a penalty can be a tax avoidance transaction and can be set aside. It is an extraordinary proposition that people who do something very artificial to avoid a penalty and seem to comply with the law can be told that can be set aside because if they had not done that they would have been liable to a penalty and would have been penalised.

A penal statute is being construed as meaning virtually nothing and everything in that a penalty is imposed in certain circumstances and somebody can look at it and say: "Strictly speaking, on a very tight construction of that section if I do X, Y and Z, even though they are of very little significance or are totally artificial, I will not be liable for that penalty". Counsel will have to say to that person: "Sorry, even if you think that on a narrow construction of that section you are out of the woods, you are wrong because what you did to avoid that penalty was a tax avoidance transaction and you are liable for that penalty". That provision should not be included and I do not think it is necessary for the purposes of the section to have a tax definition including "penalty". It may be necessary to have "interest" in it although I am not clear about that. One of the dangers in the drafting of this is that "tax" where it is used in the term "tax avoidance" should not have the same wide definition as tax does for other purposes such as purposes of recovery. In this provision it includes the idea of a penalty.

It seems wrong in principle to say that a person who goes through an artificial transaction to avoid a penalty should also be told that that can be set aside and that the Revenue propose to penalise him notwithstanding whatever transaction he was involved in to avoid it. That appears to be going very far in one direction and is, possibly, unconstitutional. I do not think it is right to say to a person that, although what he or she has done is within the law, and appears to avoid a penalty being imposed, because it was done solely to avoid the penalty it will be set aside. I am not attacking the principle of the section but I should like to ask the Minister to reconsider the meaning of "tax" where it appears in the term "tax avoidance transaction", to exclude penalty and interest.

In my amendment I go along with the proposition that a wholly artificial transaction designed to avoid tax should be set aside but then we come to the next huge hurdle which no Member has spoken about and about which there have been very few remarks in the newspapers or in the criticisms I have read. It is one we were in danger of blithely ignoring but it represents a major problem in regard to the Bill. Let us take, for example, the McGrath arrangement, and I cannot do them any harm because they have been mentioned already. If the McGraths, as seems to be the case, indulged in a wholly artificial transaction of a multi-million pound kind which conferred on them an entirely artificial tax advantage and if Deputy Michael McDowell did the same thing with his millions and his system was set aside, what would be the consequences? That is where the Bill has a big flaw and it is something about which I have major misgivings.

The Revenue Commissioners dream up the consequences of setting aside a transaction. They may say to the McGrath family, or any Member who has been adjudged to have indulged in a tax avoidance transaction, that it is void, should be set aside and that now they were going to think what the consequences would have been if the person had not got involved in the transaction in terms of tax. If I have a liability of one kind I may avoid it by one particular mechanism but has it occurred to the Revenue Commissioners that if I was told that that was a tax avoidance transaction the next thing I would do with my money would be something as tax efficient as possible? I would think up some other way to save on tax. I may be willing to pay thousands of pounds to accountants in the big seven accountant firms but certainly, I would do something pretty clever with my money to avoid tax.

Therefore, the consequences of setting aside a transaction are that the Revenue can now dream up what one would have done with the money or how much tax the money would have avoided if one had not done a certain transaction and that seems to be totally wrong. The Revenue can nullify the transaction, and the appeal tribunal may agree with them that they were right. However, then we come to the second and bigger question which is: what would the person have done if that transaction had not been a tax avoidance transaction? Would that person have invested all the money in Government gilts or in a business transaction scheme? We are left with a major assumption in the Bill that the Revenue Commissioners can think up the consequences of invalidating a tax avoidance transaction and can work out how much tax a person would be liable for under that transaction.

The Minister referred to a system involving annuities, payments and gifts. There is significant public knowledge about to describe it as the Elgar investments scheme. If that was put to me as a proposition, as indeed it was because they seem to think that every barrister has lots of money swilling round to put into schemes of that type, and I said "no" although I had the money, surely certain consequences follow for me because I am going to do something else with my money. If I give Elgar investments my money and I receive an annuity from them, what will the Revenue decide are the tax consequences for me of dismantling that transaction? What will they do? Will they say: "Let us go back to the day when you gave your money over to Elgar investments."

(Limerick East): There will be no second chances. They will hit you with the full liability.

What is the liability? As I understand it that company would give me a big whack of capital and I do not know what the tax consequences of that transaction will be. I can well imagine that denying me a series of reliefs would be fine. I can well imagine that one could ask the company for the money back but how can the Revenue Commissioners decide what the consequences of an investment by me in Elgar investments the week before the Bill was published will be for me? I do not know.

One cannot look into the future. One cannot say that something might have happened this way or that way.

If one found somebody who ploughed money into those schemes and was told that was being set aside as a tax avoidance transaction, how does one work out what the consequences of that will be for that person?

In this connection I should like to ask the Minister to read subsection (5) (a) and (b) of this section which, as Deputy Enright said, are interesting provisions. Section 76 (5) (a) is worth reading. It states:

Where the opinion of the Revenue Commissioners that a transaction is a tax avoidance transaction becomes final and conclusive [that is, either because it is not challenged or if it goes on appeal they win] they may, notwithstanding any other provision of the Acts, make all such adjustments and do all such acts as are just and reasonable (in so far as those adjustments and acts have been specified or described in a notice of opinion given under subsection (6) and subject to the manner in which any appeal made under subsection (7) against any matter specified or described in the notice of opinion has been finally determined, including any adjustments and acts not so specified or described in the notice of opinion but which form part of a final determination of any appeal as aforesaid) [That suggests that the Appeal Commissioners can take up different consequences, which is to be welcomed] in order that the tax advantage resulting from a tax avoidance transaction shall be withdrawn from or denied to any person concerned.

That is okay because they will say they are withdrawing any tax advantage a person has. However, section 5 (b) states:

Subject to, but without prejudice to the generality of paragraph (a), the Revenue Commissioners may—

(i) allow or disallow, in whole or in part, any deduction or other amount which is relevant in computing tax payable ....

(ii) allocate or deny to any person any ... abatement, relief, allowance, exemption, income or other amount... or——

This amazes me, it is taken directly from the Canadian text.

(iii) recharacterize for tax purposes the nature of any payment or other amount.

I wonder how someone can recharacterise for tax purposes something which you have effectively struck down and choose, as you will, the character you wish for it. That is a very extensive power and one which I do not think is necessary.

Section 76 (9) (a) determines what the Appeal Commissioners can do. It says:

On the hearing of an appeal made under subsection (7) the Appeal Commissioners shall have regard to all the matters to which the Revenue Commissioners may or are required to have regard under the provisions of this section and—

(i) in relation to an appeal made on the grounds referred to in paragraph (a) of subsection (7), they shall determine the appeal, in so far as it is made on those grounds, by ordering, if they, or a majority of them—

(I) are satisfied that there are sufficient grounds for the Revenue Commissioners to form the opinion that the transaction specified——

The Minister has now changed that to "consider".

——or described in the notice of opinion, or any part of that transaction, is a tax avoidance transaction, that the opinion, or the opinion, in so far as it relates to that part, is to stand good ...

That is what the Appeal Commissioners are required to do. If they form the opinion that there are sufficient grounds for the Revenue Commissioners to consider something, is that co-terminous, with forming the opinion that the Revenue Commissioners are correct?

That section has been amended.

I know, you have put in the word "consider".

I have done more than that.

Sorry, I see what the Minister has done. That improves the section so I will pass from it.

I am left with what I consider to be two major objections. I do not like the whole idea of opinions and the Minister should recharacterise them as claims because it is a claim and not an opinion — it is a claim made against somebody which they must contest. However, irrespective of that — and perhaps it is just semantics and not so important — what is the process of determining the consequences of disallowing a tax avoidance transaction to a taxpayer? That process is very open-ended and does not take account of the fact that if a person thought for one minute, before he invested in a large public company which offered him a transaction which turned out to be a tax avoidance transaction, that a transaction was suspect he would have done something else tax efficient with his money. What worries me is that the Revenue Commissioners may end up taking the worst possible scenario for a person's tax liability — it seems to me that they are obliged to do so, and they are certainly not given any power to think the best of what they might otherwise have done — rather than looking to what the person most likely would have done if he had not engaged in that particular transaction. If you are looking at a McGrath type transaction alone it is very easy to see that one can just deny a relief but there are some cases where denying a relief will not be the consequence: it will be different because the nature of the transaction will be one which will not simply be able to be set aside by denying a relief. It will be different in principle and the provisions in this section are not sufficient to deal with that.

With regard to the onus being placed on the taxpayer, the Minister should look at my wording and attempt to put the onus on the taxpayer in a more coherent way. He should not load the grounds of appeal against the taxpayer but simply say there are no loaded grounds of appeal and there is a simple onus on the taxpayer to show that the transaction is not an anti-avoidance transaction. That would be a fairer way for the Minister to go about his business. Instead of simply saying that the grounds shall be X, Y or Z and the appeal commissioners shall determine the appeal in certain ways it would be fairer to say that the appeal commissioners may determine the case as they wish, as appears just, or whatever but that the onus will be on the taxpayer to disprove that the transaction in question was a tax avoidance transaction. I should like to hear the Minister's views on whether he considers it possible to remove the concept of penalties from the definition of tax for tax avoidance or perhaps include in line 23 of section 76(1) after the word "and" the words "except where it appears in the phrase `tax avoidance transaction"' so that at least there we do not say that somebody who has done something artificial to avoid a penalty can have the transaction set aside and the penalty imposed on them. I think that is a constitutionally well grounded point.

If, as I apprehend from looking at the Minister's amendments, it is now the Minister's case that the opinion of the Revenue Commissioners has no life of its own, apart from a trigger mechanism, and is on a theoretical basis at least interchangeable with my idea of the word "claim" and is merely just a starting mechanism — and that seems to be implicit in a number of the Minister's amendments — many of my worries about the constitutionality of what goes on in the Revenue Commissioners' minds would evaporate. I should like the Minister to explain to me, for instance, why he is so adamant to cut down on the grounds of appeal in section 7. He accuses me of being loose but why should somebody not open up every ground of appeal if he or she wants to do so? I cannot understand why we have to say these are the only grounds on which you can knock down the Revenue Commissioners' starting opinion.

With the greatest respect, I contend the Minister's amendments change this section very dramatically. The Minister now says an opinion is merely a starting mechanism. Why then does he have to restrict the grounds of appeal from this opinion if it is only throwing in the ball, like the bishop at the All-Ireland, if it is merely getting the matter started? Why does the Minister have to restrict the grounds of appeal so closely as is done there? Why does he have to tell the Appeal Commissioners what conclusions they are to draw, as he does on page 75 of the Bill? I should like to hear from the Minister why all of that is necessary.

The reason for the restriction of grounds is that no transactions have actually taken place, so one is not appealing against transactions. If transactions had already taken place, in those circumstances it would be different.

I might clear up a few points before getting into the meat of it. Deputy Enright raised a question about a long consultative process that should have taken place. I have been reading about it in the media, magazines and elsewhere and I am sure Members of this House have had plenty of representations about it because discussion of this has been going on for a month if not longer, in fact for much longer if one reverts to the time when the Supreme Court decision was given in the McGrath case.

There was more discussion between the Minister, Deputy Noonan and me on disabled drivers than there has been on this issue.

I do not know about that. I took on board very seriously some of the points raised by both Deputies on Second Stage. I checked out certain safeguards and the changes effected are a response to the legitimate concerns of Members, and mine as well.

At this stage I think it is a matter of semantics in relation to an opinion, or claiming an opinion because that is quite clearly what I see it to be. The fact that we use the word "opinion" should suggest to Deputy McDowell or indeed to Deputy Enright — who raised it — and others that this huge power being vested in the Revenue Commissioners certainly is not quasi-judicial, or judicial in any shape or form. If it were, we would not be using a word such as "opinion". If one were to give them a judicial function then certainly one would not say that they should form an opinion; one cannot have it both ways.

(Limerick East): Is not that why the word “opinion” is used so that it would not look like adjudication or anything of that nature?

We went for all sorts of words. I have to be guided by the Attorney General. I knew what we wanted but at the end of the day I have to be guided by the Attorney General in relation to what are the most appropriate words to use.

With regard to the consultative process which Deputy Enright seems to suggest should go on for a couple of years, I should say that, at the rate tax avoidance schemes appear to have been mushrooming, I do not know for how long, but at the rate they have been mushrooming and being sold — ensuring that the Revenue Commissioners reap the minimum amount of tax from most transactions — then one appreciates that one is into big money.

In the meantime, who is going to pick up the tab if there is to be a two-year consultative process about what Deputies consider to be the huge power vested in the Revenue Commissioners? I do not consider it to be so at all because there is a safeguard all along the way. When the Deputy spoke about no appeal on this or that, I have to say that is a contradiction of the reality. The reality is that the McGrath case went the whole way to the Supreme Court. The appeals mechanisms within the tax code do make such provision. The McGrath case proves the contrary to Deputy Enright's suggestion.

I might clarify the point raised by Deputy McDowell on the consequences aspect. Consequences are only what are necessary to take away the artificial tax advantage, in a McGrath-type case, to deny any deduction for artificial losses. The McGrath case was based on the creation of artificial losses in one company, of artificial gains in another which are then washed through. The consequences about which we are talking are also subject to appeal and review by the Revenue Commissioners and the courts as well.

Concern has been expressed by Deputy McDowell about the question of penalties and interest, which concern has been expressed elsewhere. The Deputy suggested in his Second Stage remarks, that a general anti-avoidance section should not treat transactions undertaken solely to avoid interest or penalties as avoidance measures. I welcome the opportunity to explain why I consider a comprehensive definition of tax, which includes charges related to tax, not only perfectly reasonable but very necessary.

The application of the general anti-avoidance section to a scheme or arrangement could be summarised as follows: it identifies tax that ought to have been paid by the tax avoider, in the first instance, had he been getting on with his commercial or domestic business, paying his fair share of taxes and paying that fair share on time. If he seeks to avoid making his appropriate contribution by artificial arrangements and the manipulation of tax law, the general anti-avoidance section will frustrate him in that objective. Section 76 will reinstate his liability to pay his fair share of taxes from the date on which it would have become due had he been getting on with his business in the normal way and paying his fair share of taxes on time.

Everybody will agree that old habits die hard. It must be recognised that avoidance will continue if there is any advantage in it. There must be nothing to gain from tax avoidance if it is to become a thing of the past. Therefore, I hope the House will agree that it would be wholly undesirable that section 76 should give the following message to taxpayers: go ahead with your scheme since, at worst, you will have had the use of, or investment income from, your unpaid taxes while you contest the opinion of the Revenue Commissioners through the appeals procedures. That would be a wrong message to go out from this House.

If we are to be seen to be on their side, to remain on their side, by all means let us protect the rights of citizens and individuals; by all means let us ensure that the appeals mechanism is sufficiently strong to restrain any over-concentration of power vested in the Revenue Commissioners. Therefore, the last thing we should do is give the message, silently or otherwise, that we are on their side in some shape or form.

The "nothing to lose" mentality which might exist among potential tax avoiders if interest or penalties were not to be charged by virtue of section 76 must be discouraged. In addition, it is entirely proper that the Exchequer be reimbursed by tax avoiders for the servicing of the additional debt due to their reluctance to pay their fair share. The State should not be out of pocket due to interest paid on borrowing in order that a minority can have a go at beating the system by manipulating the rules.

I might mention specifically that Revenue penalties result from the supply of false or incomplete information and other serious offences connected with evasion of tax liabilities. The majority of taxpayers, whether or not they have a choice in the matter, recognise the need to pay their fair share and do so willingly. The way for anyone to avoid penalties is to pay his or her fair share of taxes when it becomes due. There can be no question of allowing evaders, who wilfully expose themselves to penalties, to wriggle out of them by manipulating the law.

I am sure that the majority of compliant taxpayers would not wish evaders legally to be entitled to walk away from penalties which they have brought on themselves. In fact, it is difficult to envisage how evaders could concoct schemes to avoid penalties alone. However, I am happy that, in that unlikely event, section 76 will not be found wanting for the absence of any reference to interest or penalties.

I think that clears up any of the other points to which I had not referred and should give the House a fair insight into where we are going.

(Limerick East): First I should like to say that, in my view, all Members of the House should agree with the Minister eliminating gaps in the law which allows people to avoid taxes by merely putting arrangements in place specifically for the purpose of avoiding tax. That is not at issue at all.

A part of the Minister's reply was couched in terms which suggested that there is a body of opinion somewhere in the House in favour of tax avoidance scams. That is not the position at all——

I did not want the message to go out that if we were thinking of removing penalties and interest from tax evaders we would not do so in respect of the general body of taxpayers, that the perspective might be that we were prepared to give them better treatment than the general body of taxpayers.

(Limerick East): I accept that and fully agree with that portion of the Minister's reply, but, at an earlier stage the Minister appeared to be addressing an audience that does not exist in this House. He seems to be suggesting that there was a body of opinion in the House which was reluctant to move against tax avoidance schemes which were being exploited and which were resulting in very significant losses of revenue.

That was in response to Deputy Enright.

(Limerick East): This is the first section on anti-avoidance in Part VI of the Bill. There are three specific sections in which we are closing loopholes in the traditional manner. Up to now, once the gap was discovered through which the tax avoiders were marching, the Minister of the day came back as quickly as possible and closed the gap. Normally this was done in the subsequent Finance Bill, The Minister is now doing it in section 77 in respect of the McGrath case specifically.

That is right.

(Limerick East): Section 76 is not intended to catch the McGrath case and its clones because that is being done specifically in section 77. He goes on to the investment scam and a third case in section 79 with the result that the three are being taken specifically. That is the way one would have proceeded. The Administration was quite tardy in moving on the McGrath case as the decision was made in July of last year. The Supreme Court put the ball firmly back into this court — I do not intend to double pun — and advised the House of its responsibility in this respect. Either the Minister or his predecessor should have moved in the first days of the autumn session. I raised the issue one morning on the Order of Business and I asked if it was the intention to introduce legislation to close the particular loophole which was exploited in the McGrath case.

The Deputy was ruled out of order.

(Limerick East): I was looked at in wonderment by at least three-quarters of the Cabinet who obviously did not have a clue as to what I was talking about. It seems to me that no consideration was given to this matter. A sum of £75 million of tax was foregone as a result of the McGrath case specifically but, more important, all the clones that followed it have been bandied about and I do not think people were very far from the truth. In excess of £70 million was foregone as a result of this. That gap should have been closed at the first available opportunity which was around the middle of October. We should not have waited until today to close it. There is no reluctance on our part to move.

The way in which we are moving now in the catch-all section goes beyond the traditional practice of closing the loopholes as they arise, as the Minister is doing in sections 77, 78 and 79. We now have a catch-all situation. The mechanism in the catch-all situation is triggered, as the Minister said, by the opinion of the Revenue Commissioners — and the Minister claims this is merely an opinion — so that the case can be adjudicated. I would think that the word "opinion" was chosen very carefully on the advice of the Attorney General but it is not merely an opinion in the normal accepted sense of the word. There is an element of adjudication in it. One does not appeal against opinions. If I have an opinion and Deputy McDowell has a different opinion one of us might be right and the other might be wrong but he does not appeal against my opinion and I do not appeal against his. We may take both our opinions before a particular forum to decide who is right.

He might decide that the two of you were wrong.

(Limerick East): The concept of appealing against an opinion is quite novel. When you see two appeals against an opinion you begin to wonder about the nature of the opinion. Of course, the opinion in effect is the preliminary adjudication by the Revenue Commissioners which says that, because such an such a transaction, in the opinion of the Revenue Commissioners, is primarily done for the purpose of avoiding tax, it is more than an opinion; it is more than a claim; it is an adjudication. The mechanism is in the Bill to appeal against that adjudication. I am concerned about the manner in which that will proceed.

In the early stages opinions of the Revenue Commissioners will be appealed with great frequency and they will go to the Circuit Court. The Circuit Court judges are a very worthy body of men. There is much expertise in the Circuit Court. The judges of the Circuit Court have to deal with different areas of law and they are not specialists. There are some specialists practising as Circuit Court judges, as Deputy Enright pointed out, but their function is not that of specialists. I do not know whether there are many Circuit Court judges who are specialists in tax law. I am of the view that if there are, they are few in number.

What will happen is that we will have emerging quickly judicial decisions on which everything else will hang. If the judicial decisions in the early stages go largely in favour of the Revenue Commissioners, we will have a list of black cases and white cases and people will know where they stand. The only thing about the black cases is that they will be caught under section 76 and, if the Minister does not like the white cases, he can come back with other sections similar to sections 77, 78 and 79 to take them out subsequently.

That would be taking a chance.

That would be using a double-barrelled shot-gun.

(Limerick East): We will have a court where if you lose you lose, and if you win you can lose as well. Nothing in the decision of the Circuit Court finding in favour of a taxpayer that the transaction in which he was involved was a legitimate business transaction will prevent the Minister from coming in subsequently, as he has done in sections 77, 78 and 79, and closing the loophole if the tax foregone is large enough to justify it.

The Minister knows exactly what I am saying. When the appeal goes to the Circuit Court, decisions will be made and people will lose out. Those transactions will then be black-listed and nobody else will be advised to get involved in those transactions again. Even in circumstances where the Revenue Commissioners are making a very strong case that this is a tax avoidance transaction and the Circuit Court judge finds against the Revenue, the Revenue will be in a position to advise the Minister in the following Finance Bill to close that gap. There is nothing in section 76 which suggests that a decision of the Circuit Court will tie the hands of the Minister from proceeding, as he is proceeding today, in sections 77, 78 and 79. Certainly, it is a double-barrelled shot-gun and it is far reaching.

The Minister also referred to the procedures available to test everything right up to the Supreme Court. He referred to the McGrath case and said they had their day in court and the Supreme Court, the highest court in the land, found in their favour. Here the appeal mechanism stops with the Circuit Court. One can go beyond that point on a point of law only. That is restrictive.

Perhaps the Minister would explain the difference he sees between an opinion and an adjudication. If it is merely an opinion, why are the grounds of appeal restricted in subsections (7) and (8)? In relation to subsection (13) what is the element of retrospection? It applies as respects any transaction is undertaken or arranged on or after 25 January 1989 and as respects any transaction undertaken or arranged wholly before that date in so far as it gives rise to an advantage subsequent to that date. Can the Minister explain how he sees the retrospective element working here and what his advice is on the constitutionality of retrospective legislation in this respect?

Finally, I ask the Minister to comment again on the difficulties he sees in enshrining in statute the right to advance rulings in respect of section 76 type cases, not a general statutory right to advance rulings across the tax code but in circumstances where, in the opinion of the Revenue Commissioners, something is for tax avoidance purposes. In cases where, in the opinion of the Revenue Commissioners, something is for tax avoidance purposes, where is the difficulty with advance ruling there? It seems that, in the early stages anyway, the opinion of the Revenue Commissioners will be challenged in the Circuit Court, so all the administrative work will have to be done at that point. There is no point in making a contribution when there is a private conversation going on on the other side of the House.

The Deputy will have plenty of time to come back. I am trying to put the Deputy's argument forward and hear the counter-argument.

(Limerick East): There is no point in talking for the sake of being on the record. I am trying to make a case to the Minister.

I know what the Deputy is concerned about, advance ruling. In case he thinks that we do not listen to him when our heads are sideways, we do. As regards advance rulings, I was trying to clarify a few points in my own mind. I do not purport to have all the answers. The Deputy talks about constitutionality. All I can give him is the advice that I got on the constitutionality of section 76, that it is all right — no more than that. That is what the law officer, the Attorney General, is there for, to advise the Government and give his best opinions in relation to constitutionality. I do not say that that is the position. Deputy McDowell has an opinion that it may be challenged and successfully challenged in the High Court, parts of it anyway. There are varying opinions around. Most people would say that it will not be knocked down; some will say that at worst there might be a slight section of it knocked down. I can give the Deputy no more than that.

(Limerick East): That is not what I asked. In so far as subsection (13) is concerned, how far does the Minister see that as being retrospective?

I made a clear decision on retrospection in this regard in so far as it is possible to do so. Take the 1977 McGrath case. Budget day is traditionally when you announce in the budget that you propose to take certain measures. That is the date traditionally, as far back as one can go. If that is not taken, then it is the date of the publication of the Finance Bill. In the McGrath-type case, relating it to the budget, if somebody has created artificial losses in advance of budget day and in the future intends to create profits in a small sum or large sum, £5 million or £10 million, and to wash these in over the next three, five or ten years, those are out, as far as that transaction is concerned, despite the fact that profits were in place in advance of budget day. In other situations we try to hold section 76 as close to that as possible. That is not 100 per cent tight. There may be situations where cases will have to be looked into.

I will deal with the advance rulings. We are coming near breaktime and I want to get more information for resumption of the debate after lunchtime. It has been suggested that the anti-avoidance provisions will introduce uncertainty into business transactions and that the Revenue Commissioners should provide an advance ruling service. I touched on this topic very briefly in my opening speech on Second Stage. As I said then, the anti-avoidance provisions are aimed at transactions which set out purely and simply to avoid tax. It is neither necessary nor practicable for businessmen to seek advance rulings before engaging in genuine business activities. It is not necessary for persons availing of tax relief in a bona fide manner to seek advance rulings. Subsection (3) (d) makes that quite clear.

Within the definition of tax avoidance transactions set out in subsection (2) there is no need for anybody carrying out a business transaction which is not primarily for tax avoidance purposes to seek an advance ruling. In relation to incentive relief such as 10 per cent corporation tax in the International Financial Services Centre or under the business expansion scheme, the Revenue Commissioners already provide an advance opinion service to reassure investors that they qualify for relief. In relation to transactions already completed, the Revenue Commissioners endeavour to provide guidance on how they should be returned for tax purposes. Failing this, the self-assessment rules introduced last year provide a simple mechanism for enabling taxpayers to deal with matters of doubt on the basis of their own opinions as to their tax status and to bring the matters to the attention of the Inspector of Taxes.

In view of the existence of this extensive body of safeguards, it must be asked why and in what area the requested advance ruling procedures are needed. I feel that their main area of use may be in relation to transactions which involve a large amount of tax planning. Tax planners obtain large fees for their services and it is important that State agencies do not find themselves doing the tax planners' work for them.

If, under an advance ruling procedure, the Revenue Commissioners were to say that a proposed transaction amounted to tax avoidance, it is possible that they would be asked further questions about different variations until a favourable response was obtained. I understand that in Canada the tax authorities charge for their advance ruling services. However, that approach has its own problems and difficulties and is not a step to be taken lightly. As I mentioned in my opening speech on Second Stage, it is most important that Revenue officials do not find themselves having to respond to hypothetical or artificial propositions which are aimed at constructing safe tax avoidance schemes. No tax jurisdiction of which I am aware imposes such an obligation on its officials.

I am satisfied that the Revenue Commissioners, within the limits of their resources and in the context of the development of the self-assessment procedures, will continue to provide and expand upon the assistance that they give to business and other genuine interests where the names of the taxpayers and all the facts are disclosed to them. It is not reasonable to expect, however, that a general tax advice service will be made available to tax planners. They should be prepared to stand over their own advice for which, as I have said, they are well paid. I assure the House that this is an area which I shall keep under review. Within the caveats to which I referred about tax planners and hypothetical questions, it would be my intention to ensure that there is no impediment in the section to the conduct of genuine business activity. Those were the points raised.

I was listening to Deputy Noonan and I am more and more convinced, the more I think about what the Minister is proposing today, that this is one form of section which is turning slowly during the course of this debate into another form of section and that the Minister's amendments have in fact tidied it up and changed its character fairly substantially. As Deputy Noonan pointed out, it is very strange to find people appealing opinions. It is even more strange to find that opinions become final and conclusive in the ordinary cannot be conclusive in the ordinary sense of the English language. It means that the word "opinion" is being used to describe some other transaction. This section as originally planned or mapped out, before the word processors got going at it and the Attorney General got out his red pen, was one which provided for, to use Deputy Noonan's phrase, a process of primary adjudication by the Revenue Commissioners — the Deputy may have used the phrase "primary determination". That is what is actually happening. We now see a process which was built on that kind of foundation being changed as the building process goes on into a different kind of process. I refer to subparagraph (b) on page 71. Let us deal with the first part of that subparagraph which says that in subsections (2) and (3), "for the purposes of the hearing of an appeal under subsection (7), the reference to the Revenue Commissioners, shall, subject to any necessary modifications, be construed as references to the Appeal Commissioners". In other words, in subsections (2) and (3) the reference to the Revenue Commissioners will be construed as a reference to the Appeal Commissioners for the hearing of an appeal under section 7. I should like the Minister to explain if that was not an effort at primary determination and, if it is not the telltale sign of a primary determination being taken out of the section, what is actually means. In subsection (2) for instance, where would the reference to the Revenue Commissioners be regarded as a reference to the Appeal Commissioners?

Subsection (2) defines the tax avoidance scheme. On the advice of the Attorney General's office the structure of procedures for arriving at a tax avoidance transaction takes the form of the Revenue Commissioners forming an opinion.

That is very helpful.

Very helpful. Was the Deputy asking about subsection (1)? In order to tackle the problem of artificial tax avoidance schemes subsection (1) (b) contains a number of directions to the Revenue Commissioners requiring them to have regard to matters——

You can hand in your hospital cards there.

There is nothing in that that interests me no matter how far I read it.

You could construe a reference to the Revenue Commissioners in subsection (2) as a reference to the Appeal Commissioners for the purpose of an appeal.

Now let Deputy McDowell try this one.

Once more with feeling.

It puts the Appeal Commissioners into the shoes of the Revenue Commissioners from the very start.

It proves conclusively what Deputy Noonan said. This section is a reconstruction job.

I made no bones about it and I set out to put in proper safeguards.

I know, but it means nothing as it stands. The words "Revenue Commissioners" appear twice in subsection (2). I cannot see how, for the purpose of an appeal, the words "Appeal Commissioners" could be substituted there and mean anything. It indicates clearly that what was intended here from the very beginning was that the primary adjudicators and the primary determining body would be the Revenue Commissioners and we have had a somewhat watered down concession to constitutionality from beginning to end. Even if the Minister waits until 3.45 p.m. to find any possible circumstance in which he could deem that reference to be the Appeal Commissioners I would like to see that. I am asking him to indicate how, if there was an appeal under subsection (7)——

Subsection (7)?

——the reference to Revenue Commissioners which are two in number in subsection (2) could be construed as reference to the Appeal Commissioners.

Subsection (2) provides the ground rules for the Appeal Commissioners in relation to the transactions that make up their declared determination of the situation related to the transactions. Does that get the Deputy any farther down the line?

It does not get the Minister down the line. The question I am asking——

I know the question the Deputy is asking. He is asking if changes were made in section 76. I think I have made it abundantly clear here from the very start that there were certain aspects of it I was not satisfied with and we brought our own amendments into it. Naturally, that is part of the reconstruction the Deputy is talking about. I never tried to say otherwise. All we want to do here is try to make sure we strengthen the rights of the individual against the power that is being invested in the Revenue Commissioners. I have never denied anything like that and do not deny it.

I am not trying to score points off the Minister or to drive a wedge between him and his advisers. It now appears that the Revenue Commissioners when they drafted this — or whoever drafted this section to bring before the House — originally intended that a primary determination would be done by the Revenue Commissioners, and the Attorney General's staff came along with their red biros and said that could not be done, and have here and there with legal Elastoplast tried to stop this thing from bleeding to death. Now we have a very badly drafted section because it still bears all the hallmarks and paraphernalia of a section designed to do one job and being slowly reconstructed to do a second job. If you do not want to call it legal Elastoplast it is legal "Isopon". The whole thing is very rickety and does not stand together as one coherent piece.

That is the Deputy's opinion.

Mr. Noonan

(Limerick East): It wants to be renewed.

That is right. There are a few organs hanging around this body which appear to have no function left. It would be better to go back to what Deputy Enright said at the end of his contribution: that there should have been from the ground up, construction of a section which was a coherent whole, built on an organic basis, on good foundations. That is what is wrong with this measure. I do not know whether the High Court or the Supreme Court ever have regard to happenings in this House in order to find out what happened, but I feel that if they take a look at the record of this House they will realise that the history of this section was that it was transformed from unconstitutionality to as close as possible to its original form but conforming with the Constitution. That will weaken it if it is brought before a court because the court will see it may not have achieved all it set out to do.

That is why I thought it would be better to start from a plain level site and provide, if the Revenue Commissioners claim it is a tax avoidence transaction and someone disputes it, that it is adjudicated on. If the Revenue Commissioners claim it and someone does not dispute it their claim is deemed to be admitted. That will get over all this hassle about opinions, grounds of appeal, narrowing down the grounds of appeal, forcing the appeal commissioners to arrive at particular decisions, telling them what they have to have regard to and trying to prevent them from getting off the tracks. That is what I find mystifying about this Bill. You have two or three Appeal Commissioners and Circuit Court judges. They know their business. They know what the issues laid before them are. They do not have to be told how they approach something or how they are to conduct their appeal or what they are to have regard to in determining what is or is not a tax avoidance transaction. The only circumstance in which it would have made sense to tell them how to approach the whole issue was a primary adjudication which you wanted to copperfasten and make as appeal proof as possible. That is why I have my misgivings about this section.

As Deputy McDowell said, we would all love to live in the ideal world and make everything simple, but when you leave it simple all the big industrial tax planners out there get at it and bore 40 holes through it. Look at where section 84 developed from as an example. It did not start out where it is today. This is what happens no matter how you look at it. I heard references to why I went for the cases of the tax avoidance mechanisms I knew about and why I went for the general as well.

The Minister may be right.

Others might not think it is right to go for both. I believe I am right. There is a job of work there to be done and either we do it or do not. The problem about Deputy Enright's suggestion is that the consultative process he suggested would be a year or two years down the line. I hate to think what sort of money would be gone out of the Exchequer if we gave them two years' notice of what we might do in relation to tax avoidance. I have no intention of doing that.

Progress reported; Committee to sit again.
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