I have only to repeat my remarks on this section. This is not meant to be an attack on the Department of Finance. It is an attack on the incapacity of people to say what they mean in simple words. Having gone through it with the assistance of the officials they tell me that so far as they know there is no other tramway company except Córas Iompair Eireann going to be affected. There may be, but they could not say. If it was intended to affect only Córas Iompair Eireann I think that could have been said in five words instead of involving an investigation through six long sections of different Acts. This is not an attack on the Department of Finance, but it is an attack on draftsmanship which is particularly common in Finance and Local Government Acts. It is about time somebody protested against draftsmanship which gives rise to a very strong suspicion in certain people's minds that the section is so drafted that the person who is affected shall not become aware of it until it is too late. I have heard that accusation made more than once, and I have heard a very doubtful denial of it in certain quarters. I think if it can be drafted so that an ordinary person can understand it, it is time to protest against this method.
Finance Bill, 1945 (Certified Money Bill)—Committee.
I would be the last to resent it if the Senator succeeded in getting a very much shorter and clearer draft. I do not know whether it is the draftsman or my Department is responsible for this. It may be that my Department had some objection to the clearer draft for some reason. These income-tax sections are very intricate and technical. I imagine from a lawyer's point of view it has some advantages. Maybe if they were all as clear as the Senator wants to make the section there would be less briefs.
We like getting money out of doing real useful work well, not out of disentangling a maze.
I move recommendation No. 1 as follows:—
That a new section be inserted immediately after Section 6 as follows:—
When the whole or any portion of the remuneration paid to a director or employee of a company is disallowed by the Revenue Commissioners as a charge against the profits of that company for the purposes of an assessment for corporation profits tax or excess corporation profits tax, such director or employee (as the case may be) shall not be liable to assessment for surtax on such portion of his remuneration so disallowed.
It appears that the Revenue on the one hand are saying this is income and, on the other hand, that it is not income. In consequence the Revenue is getting it on the double. They get excess profits tax on the one hand and surtax on the other hand. It appears to me that the most they should get is surtax, calculated on the amount disallowed and the amount that would remain after corporation profits tax is deducted. If for example there were £500 disallowed, and £100 remaining after the two corporation profit taxes had been deducted, then I would say it was perfectly fair to charge surtax on that £100, but to charge surtax on the whole £500 means the Revenue is getting tax not on revenue but a tax on their own tax. Apart from that, if I may digress a little, this recommendation was put down to deal with a specific case; it is really to deal with the question of a hardship.
I can give the Minister an exact case of hardship. This is where five people were carrying on a certain service and, due to the exigencies of the emergency, and particularly due to the transport difficulties arising from the emergency, each of them was not able to carry on the service satisfactorily, as a result of which the service which they were providing lapsed to some extent, so far as the business was concerned. Accordingly, they decided that they would all pool their resources, that they would pool their profits and their income in order to save the cost of transport. The only way in which they could do that, without each becoming fully and absolutely a partner in the enterprise and responsible for the debts of one another, was by forming a company. They did so, and then they found that the amount that they were to get away with, so to speak, without corporation profits tax, when it was pooled between them all, was going to come to one-third of the amount they had been making as private individuals before they turned themselves into a company. There was practically no capital involved. They formed the company merely for the purpose of keeping on that particular service during the period of the emergency, and they had been informed that they could not do so without forming a company. In consequence, as I have said, they decided to pool their resources, and to that extent the transport arrangements of the country did not have a further strain imposed upon them.
Now, I have personal knowledge of that particular case, but I am also told by a person, whom I have no reason to doubt, that eight people formed a company and, having formed it, only then became aware of the situation, and I am informed that the amount of income-tax in their case would be just under 50 per cent. I am sure that the Minister will agree that those two cases are cases of hardship. I shall admit at once that, possibly, particulars with regard to these cases were not sent to the Minister or even to his Department, because I suppose that these people, having got to that stage, regarded the case as hopeless, but there are cases of hardship of that kind, and it is not always easy for these people to bring their cases publicly before the Minister. I suggest that such cases should not be dealt with from the angle that the Revenue Commissioners will say that no hardship will be imposed, but rather that they should be dealt with from the angle—and I admit that it is not easy —that sections of the Act should be so drawn that cases of hardship will not arise.
I do not think anyone could guarantee that no case of hardship will arise in connection with any Act, no matter how carefully it is drawn, but when such cases are discovered we try to do away with them by means of some amendment of the law. No matter how careful we are in drafting any particular piece of legislation, I am afraid that it will pinch someone somewhere, but I think that what is at the bottom of all this talk about hardships is that the tax is too heavy. The rate of taxation is very heavy, and I think that if the taxes were not so heavy, people would not bother about small matters.
I am inclined to agree with the Minister. I think he is right.
This is a very heavy tax, and I want the country to know that. It is a frightfully heavy tax, but we have to have it in order to meet the heavy expenditure that we have to face, and that will be very difficult to do. Senator Hayes reminded us to-day that there are constant demands for more money for various excellent services, and people have got into the habit, where they used to talk of £20,000,000, of now talking of £50,000,000, and it will be very difficult to get away from that habit. I am not talking about other governments now, but of the Dáil and Seanad.
There is not a day in which, in the Dáil or the Seanad, people of all Parties demand that more money should be spent on various services, and therefore it will be difficult, unless the Dáil and the Seanad press hard for a reduction in the rate of expenditure, to bring about any reduction in the rate of taxation. This recommendation by Senator Sweetman relates to a matter that is highly technical. I do not think there is any matter that I have dealt with, either in the Dáil or in the Seanad, that is more difficult or intricate than this matter of income-tax. Personally, I gave up long ago trying to fill in or deal with income-tax forms. What I do is to go to an expert on income-tax matters, and say to him: "Here, fill up this form. I am afraid to attempt it myself."
Unfortunately, I have to attempt it.
Yes, I know, Senator, and I have to attempt it, too, but whenever I can sidestep it, I do so. At any rate, it is a very difficult subject. That is the truth, so far as I am concerned, and I think that everybody here will say the same thing, and that they will try, not alone to get out of paying income-tax, if they can properly get out of paying it, but will try to get out of having to fill in all the various forms that they have to fill in. As I said before, I hope that the law will be simplified, so far as it can be. It never can be fully simplified, but so far as it can be simplified, codified, and brought into a compact Act or two, I should like to see that done, but that will be a matter for future legislators. This recommendation of Senator Sweetman's is a difficult matter. It is not so simple a matter as he says: that when a disallowance is made by the Revenue Commissioners, under the powers they have, and they say they will leave you only so much of the director's remuneration under this tax, the remainder of E. for surtax should not be included. Excess corporation profits tax is one thing and income-tax is another. They are different codes of law.
But all are paid to the same State.
Yes, but they are two different codes, and the Revenue Commissioners cannot say that if this disallowance is made they will give it to you free of tax. It does not mean that the particular director concerned will get away with that. The amount would still have to be reckoned as profit, and he would still be subject to income-tax and surtax.
I have to be guided in this matter by expert advisers, and I am so advised.
It certainly could not be done in the way the Senator suggests, if it could be done at all. It would take a section, possibly, of the type of which Senator Kingsmill Moore was complaining a few moments ago, to accomplish what the Senator wants.
I move recommendation No. 2:—
That a new section be inserted after Section 6 as follows:—
Whenever the Revenue Commissioners disallow part or all of the remuneration paid by a company to a director or employee as a charge against the profits for the purpose of assessments for corporation profits tax or excess corporation profits tax, they shall state the Acts and the section or sub-section thereof under which such remuneration has been disallowed.
I am not insisting that this recommendation should be incorporated in the Bill. I would be perfectly satisfied with a statement from the Minister with regard to the matter. I may say that, although I was given the facts of a particular case, it is not my experience that the Revenue Commissioners withhold such information. Naturally, in saying that, I am thinking more of the estate duty department of the Revenue Commissioners. So far as that branch is concerned, I have never had the slightest difficulty in getting the basis of their rulings, but I am informed by somebody—again I cannot disclose the name or the instance of the case because there is a possibility that there might be an appeal—that in that case the information was requested——
Was it refused?
——and that the person concerned in the Revenue Department—possibly he was like the Minister and wanted to avoid things— side-stepped the request and did not answer the letter at all. He cannot be got to answer the letter. I shall be perfectly satisfied if the Minister will state that it is going to be the practice of the Revenue Commissioners, in any case in which they are asked to give chapter and verse to the person concerned. That will satisfy me completely.
I am given to understand that that has been the practice of the Revenue Commissioners. When asked for their legal authority, they are always prepared to quote chapter and verse. I am sorry if, in this particular case, they have not responded to the request.
Perhaps they did not know.
That could happen, but I have found nowhere in the Government service more expert or more reliable officials than in the Revenue Department. They are first-class men who know their job and the authority under which they are working. I certainly undertake on their behalf that, whenever any citizen asks them to quote the law under which they are acting, they will quote chapter and verse for him.
I move recommendation No. 3:—
That a new section be inserted after Section 6 as follows:—
The provisions of Section 14 of the Finance Act, 1944, shall not apply to any subsidiary company formed after June 1st, 1945.
I thank the Minister for his undertaking in connection with the last recommendation which I am satisfied will be implemented by the Department. I was a bit surprised when I was told that a request had been dealt with in the manner which I stated because I was wondering whether I had got special treatment. For my own part, I had found that such requests were acceded to. So far as this recommendation is concerned, I really put it down more from the point of view of getting some information from the Minister than from the hope of having the actual wording of the recommendation accepted. Now that the war is over, it is essential that every possible avenue of employment should be exploited and old companies are not going to embark on business extensions, if that simply means that they have got to pay more excess corporation profits tax. I think it would be very desirable, in the interests of the expansion of business, if the Minister would give some indication that he hopes to be in a position to alter Section 14 of the 1944 Act, so far as the future is concerned.
May I join Senator Sweetman in urging that the Minister might find it possible to accept this recommendation? Many of the old-established companies—in fact, my own is one of them—are finding that a lot of the newer articles put on the market in recent years are products of companies with which the Irish companies have had dealings over a long number of years. These articles are so distinct from their original products that they are insisting on the distributors setting up separate organisations to take care of them. It would deter companies like my own from embarking on a new avenue of business which would create employment, if they found that by setting up a subsidiary company they were simply going to be mulcted in the parent concern for profits made in the smaller one. I think if the recommendation were adopted it would not adversely affect the State and it would definitely have the effect of creating more employment.
As I said, speaking on the last recommendation, I think the fundamental difficulty is the excess corporation profits tax. I think so long as that is there it is a deterrent to enterprise. I regard it as a deterrent to enterprise, and if we are going to have industrial development on anything like a large scale encouraged here, it cannot be brought about until the excess corporation profits tax disappears. I did not hope that it was going to go this year, but I did think that, in other circumstances, we might have been able to reduce the amount of the tax this year. Then when I saw the Bill for gratuities which we are not meeting in full in the Budget— we have a fairly good idea of what the total figure will be, but we are not covering even all that with our present taxation; a considerable amount will have to be borrowed—I could not see my way to make any reduction in this year's taxation. But if we are to have industrial development here, that cannot go on. I am giving my view as Minister for Finance, as one interested in industry prospering and in industrial development going ahead. This very heavy rate of taxation, which results in so much taxation being skimmed off by the Exchequer, is a considerable discouragement to industrial enterprise in particular. I do not, however, think I could adopt this recommendation, because I do not see why the 1st June, 1945, should be inserted in the recommendation. All those who had formed subsidiary companies say after the 1st June, 1944, would have a terrible grievance that companies formed after the 1st June, 1945, would escape the tax.
Then it would mean also that there would perhaps be a good deal of evasion. I do not think it would be fair that I should do that. I have had cases brought under my notice where subsidiaries were formed that could be regarded as a new line of business, such as Senator Summerfield has in mind, by an old established firm. It did not always happen that they were made subsidiaries according to law. There is a way out. We are not anxious to penalise people who show enterprise in that way. We have permission under the law to let them out, and they have been let out.
I move recommendation No. 4:—
That a new section be inserted after Section 6 as follows:—
The provisions of Section 14 of the Finance Act, 1944, shall not apply to any subsidiary company which can satisfy the Revenue Commissioners that the trade or business carried on by it was not carried on by the parent company at any time within five years of the formation of the subsidiary company.
This is rather a safeguard in case I got completely sat on in regard to No. 3. If the Minister would accept No. 4 we could very easily, with thanks, waive No. 3. I think in the case of a new business which has not been carried on for five years there could not be the same objection as the Minister made about the difference in dates between the 1st January, 1944, and 1st January, 1945. I think it would very materially assist industrial enterprise if it were accepted.
I support Senator Sweetman in this, because I think it will meet some of the difficulties. It will prevent the formation of purely bogus subsidiary companies. A bogus subsidiary company is a company formed merely to take over a branch of what was already carried on by the parent company. But the parent company launches out into a new type of business, and forms a company for it. I think some such relaxation as there is in the recommendation should be considered. I do not think it would quite cover Senator Summerfield's point. Let us suppose, for instance, that a person has been a dealer in motor accessories, and has dealt in certain very well known lines. The companies with which he is dealing may say: "We cannot keep up our standard, but we will put a similar article of a lower grade on the market and call it by a different name." If Senator Summerfield were to form a company to deal with the new article of the lower grade under a different name I do not think that he would get in on this.
No. I am not seeking to.
I merely wanted to sound a note of warning in case I might be misunderstood.
I happen to have a business connected with one of the world's mammoth organisations. It is probably true to say that it is one of the four largest organisations in the world. They make many things besides motor cars. They make a whole lot of electrical devices, all sorts of refrigerating machinery, and things of that kind. If I could induce that huge corporation to give me one of the many other activities they carry on, and for which, in America, they have a separate selling and distributing organisation—when I stress the personal pronoun it is merely for emphasis—and if I started out to sell electrical washing machines through a subsidiary company, I would feel that I should get encouragement rather than hindrance from the Government. I am sure that is what the Minister would wish. It would be completely divorced from the original business. It would be a subsidiary carried on by me and financed by me.
Has Senator Sweetman anything to say on this?
I do not think so, except perhaps one remark which may be slightly irrelevant. Having regard to the amount of trouble I got the Minister into in the other House about the last amendment of mine which he accepted—trouble caused by people who did not read the section perhaps as fully as they might—I started off on the assumption that he was not going to walk himself into further trouble.
I am always walking into it.
And slipping out of it.
I really think there is a case for it. I will leave it at that.
I do not know how far one would describe the type of business Senator Summerfield has in mind as a line of business closely allied with his own business. It is difficult to decide that. Certainly, I would not exactly call a washing machine a motor car. It might be motor driven. If it were closely allied and if the business were making profits I do not see why they should not be taxed as subsidiary. But if they were separate and distinct, something entirely apart, a subsidiary company or a new company started by an old company to do an entirely new line of business, then, bad as some Senators think the existing law, there is power at present to relieve that new organisation—although a subsidiary— of the tax. Section 14 (5) of the Finance Act, 1944, says:
"Where a post-appointed day company is deemed by this section to be a subsidiary of a pre-appointed day company, then, unless the Revenue Commissioners otherwise direct, the following provisions shall, for the purpose of a charge to corporation profits tax, apply."
There is a discretion given there to the Revenue Commissioners, and that discretion I can assure the House has been exercised to the advantage of subsidiary companies.
Should they not know beforehand? Is it sufficient that there should be a discretionary power? I raised this point last year. Unless you can know beforehand quite definitely that that discretionary power is going to be exercised in your favour, you are not going to take the risk. I think it is much better to have a clear principle laid down, or proper machinery whereby a person can get a ruling before he starts the new company. Otherwise, it is a clog upon enterprise. I think it is kept there for the sake of a formal uniformity, and that it would be possible for the advisers of the Minister either to adopt this recommendation, with certain alterations to meet the details of the situation, or to introduce something very like it. It is most unsatisfactory to say: "Live horse and you will get grass. Start your company, and perhaps the Revenue Commissioners will be human." They often are human, but they are sometimes tinged with inhumanity when they want money.
I think the Senator can take this from me, that if the law has to lay it down directly, sub-section after sub-section, in detail, it will be much more strict and much more careful to enclose every case, and that it will let nobody get away with anything, instead of allowing a certain discretion to the Revenue Commisssioners such as is done in this section. I think it is not a good principle to allow discretion to the Revenue Commissioners, and it is not fair to the Revenue Commissioners.
I agree with both.
It is a very difficult thing for the Revenue Commissioners to have to decide. It would be much easier for them to ask the Dáil and Seanad to say: "These goods shall be subject to the tax, and these others shall not", or to say positively: "All these goods shall be subject to the tax."
If what the Senator wants done has to be done, I think nobody will escape. That is what I am afraid has happened. No Minister for Finance could take any other course, but under the conditions to which Senator Sweetman has referred to to-day, a number of manufacturers have entered new lines of business during the emergency. I agree with Senator Kingsmill Moore that they took a chance and they have to take the chance of escaping the tax. If the new business is separate and distinct from the old business they may not have to pay, but otherwise they will have to pay. All the advice I can give is that when they take the risk they should study the law and take their chance. I do not think that the Minister can do anything else. The Minister cannot be positive and clear that certain types of people are not to pay excess profits tax.
I thought the Minister, from recollection, gave an assurance on that point last year.
I have the quotation.
I understood him to give a ruling last year which would meet Senator Kingsmill Moore's point.
But the Revenue Commissioners do not do it.
I am as certain as I am standing here that if Senator Hayes or Senator Kingsmill Moore or Senator Sweetman or anybody else— any citizen—interested in setting up a subsidiary of that kind comes to the Revenue Commissioners and asks for an opinion, he will get that opinion from the commissioners.
The Minister stated that last year on the Bill, too, and I think it was fairly generally accepted. I know of no case where his statement was not lived up to.
I do not know of any case which has been brought personally to my attention in which my statement has not been upheld. I think the House was quite satisfied with what I said last year.
Senator Hayes, I am afraid, prompted the Minister to do a little slipping out.
I am always glad of expert help.
The Minister slipped out of Recommendation No. 4. I am calling attention to the wording of sub-section (5) of Section 14, and while I appreciate that during the war it was necessary, very much more necessary than it is now, to control profiteering, now that the actual war in Europe is over, I think that the Minister might be in a position to accept this recommendation in sub-section (5), which merely does away with any question of consideration of the similarity of character, and so on of any trade or business not carried on by the parent company within five years. In those circumstances it is not to be regarded as a subsidiary. I am not very proud of the drafting of it, but I think the Minister might appreciate the principle and I would press him very strongly to accept it. We are starting at the beginning of a new era and I hold that we should start off on the right foot.
I do not think that the Senator can say that we are starting a new era so long as the excess profits tax remains on the books. When that tax goes, we might start a new era.
Recommendation No. 4 put and declared negatived.
I am quite satisfied.