I spoke on this on the Appropriation Bill and I rose again intending to put a question to the Minister last evening. In the course of my Second Reading speech I suggested that though the Minister has been advised that returns from this section will mean additional revenue in this fiscal year there are solid grounds for believing there will be some loss in taxation in subsequent years because companies would be able to arrange their affairs so as to avoid paying this tax in the case of Irish subsidiaries of English companies who would be well advised, and have in fact been advised, that by closing down their Irish subsidiaries and running the affairs of these subsidiaries through a branch of the British company they will save 15½ per cent in taxation. Fifteen and a half per cent is a good deal of money; it is equivalent to 3s 1d in the £.
I also suggested in my Second Reading speech that the investment portfolios which are managed for rich people through Irish investment trust companies enjoy more favourable treatment here than they would if they were in Britain. These people are prepared to pay some taxation here as a subscription towards the amenities they enjoy through membership of this society. Professional people have refrained from advising clients to move their affairs into tax havens. Although it is merely tax avoidance it is rather unfair to organise one's affairs in order not to pay direct taxation in one's country of residence. People will go abroad because of this. This additional taxation will give them the final push to move their companies abroad.
We do not have the same provisions in our Income Tax Act as are contained in the British Income Tax Act, 1952, for dealing with the situation where capital is transferred abroad to avoid taxation at home. There are great difficulties involved in bringing in such provisions here. On balance, I would bring them in.
I would distinguish between people whose domicile of origin is Irish and people whose domicile of origin is other than Irish, who have come to be domiciled in Ireland. This is a distinction that is not normally made but I cannot see anything wrong in doing something good just because it is new. The Minister should consider the consequences of raising the taxation on corporations in this fashion. Provisions will have to be introduced to catch people who try to avoid it.
In his Second Reading speech yesterday the Minister was, I thought, inadequately briefed. I recognise the language and the approach. He said that, in effect, it would not apply to more than 30 per cent of companies. I suggested it would not apply to more than 20 per cent of companies. I am interested to learn that 10 per cent more will be affected. He then said that of this 30 per cent, some would enjoy extra tax relief. I agree that may be the case but this does not dispose of the matter at all. I am talking about companies, particularly manufacturing companies, affected by it, who do not enjoy extra tax relief. It is not right to say these companies should have provided for this through a tax equalisation fund. That means they should put money aside to cover additional taxation on corporations. This does not deal with my point. My point is that corporations should not have to pay additional taxation.
It is most unfair to tax someone whose normal rate of taxation is 7s at the rate of 11s 6d. Companies who retain money are in fact saving money. They are doing what the Minister asked them to do in the first Finance Bill. They are putting it aside in order to invest it, employ more people, and replace machinery that is becoming defective. They are putting it aside to deal with the most difficult years those companies are ever going to face because of the extra competition resulting from the Anglo-Irish Free Trade Area Agreement. Even at this stage I would ask the Minister to reconsider this proposal because of the impact it will have on manufacturing companies. In the next few years we will see the enormous advantages that the manufacturing companies will have—that is, those wise enough—in organising their distribution so that they have links with the market here. This will be a terrific attack on the Irish market and we should be coming in to the assistance of these companies now. Instead we are making it more difficult for them to stand up to the competition which is going to be presented to them. I do not find any logic in this and it will be of very little assistance to the Minister in his budgetary problem this year. I see it as advice given to him which was not sufficiently well thought out by the people who advised him.
It was meant to look like a crack at the employer to justify him in his general approach—and I have sympathy with his position—to try to make employees understand that their demands for extra incomes which are excessive and are the main cause of our inflationary problems, have got to be restrained. What we are doing here is making a pretended gesture. Thank goodness the Prices and Incomes Bill has been dropped. There were so many defects in that Bill I wondered when it would be passed, if we dealt with all the amendments that would have to be made in order to correct its defects.
I understand the motivation behind this section but the effect of it, if enacted, on manufacturing companies in particular will be very bad for the economy. I think it will be found that this section will not yield the extra revenue which is expected.