I move amendment No. 116:
In page 73, before section 32, but in Chapter VI, to insert the following new section:
"32.—Section 41 of the Finance Act, 1983 shall have effect so as to allow credit for foreign tax payments where a Company receives a distribution of profits from subsidiaries abroad.".
This amendment relates to a potentially serious position which may arise in the future. The tax treatment of companies that have headquarters in Ireland but also have operational activities outside Ireland is such that tax credits are not given in respect of certain distributions to Irish shareholders in respect of tax already paid in other jurisdictions. A small but nonetheless very significant grouping of companies, in Irish industrial terms, is involved. These are relatively large players and are not insignificant in their own sectors abroad. They are very large in Irish terms. Something should be done about the tax laws here and about giving credit for foreign tax payments in order to avoid two situations which may otherwise arise. First, some companies may set up separate units for the treatment of tax and for handling the share-holding of Irish shareholders, as opposed to non-Irish shareholders, to try to get over this. Secondly, some of those larger companies might take the view over time that it is simply more convenient to head-quarter themselves elsewhere and avail of the various tax distribution benefits that would apply in other jurisdictions and do not appear to apply here.
I apologise for being late. Matters such as tax amnesties had to be dealt with.
It has been indicated to me by a number of Irish multinationals that they may have to consider locating their headquarters abroad unless a change takes place in the tax credit made in the Irish revenue system for certain types of tax paid abroad. Obviously, it is a somewhat complex area given the mobile nature of capital, labour, enterprise and goods within the Single Market which opens up new opportunities for multinationals to operate on a transnational basis. Amendment No. 116 is proposed in response to those representations. I ask the Minister to give it favourable consideration.
The issue raised and explained at the outset by Deputy Cox is one which affects only a small number of companies, as he readily admits, and it arises only in particular circumstances. Advance corporation tax is a payment required to be made to the Exchequer by a company which pays a dividend or other distribution and the payment required to be made is an amount equal to the tax credit attached to the distribution. In general the shareholders in the company are taxable in respect of the dividens received and they are allowed to reduce their own tax liability by the amount of the tax credit and in some circumstances to receive a payment to the tax credit. In effect, the shareholder is entitled to reduce his or her tax liability on the dividend by the amount of the corporation tax which has been or will be paid to the Exchequer by the company. Advance corporation tax ensures payment of the amount of tax by the company.
The amendment seeks to bring about a situation which will allow a company's advance corporation tax liability to be reduced by foreign tax borne by its overseas subsidiaries from which the company receives dividends. In such circumstances the shareholders would be entitled to reduce their Irish tax liability by an amount which would not be paid by the company to the Exchequer. The shareholders would be able to reduce their tax liability by the amount of tax paid in other jurisdictions by the company's foreign subsidiaries. The issue has implications for the allocation of taxing rights between countries and, as Deputy Yates has stated, there lies the problem.
The issue has been reviewed at Community and international level through the ruling committee, which is an expert group set up to examine corporation tax systems within the Community. Deputy Cox would be familiar with this group. I have heard him speak on the issue. It has been an ongoing saga for six or seven years. As the Committee knows, the Commission has undertaken to try to initiate discussions on the issue between member states with a view to finding an EC solution.
We have discussed this in the Commission. As Deputy Cox probably knows better than I do, this is a major issue for the United Kingdom. It only affects us in a small way, but it affects them in a very substantial way. It is likely that the solution will be found at EC level. It would be imprudent for us to take any unilaterial action here. I know the UK has moved a small way this year to try to start the process, but I can assure Deputy Yates that I will keep the matter at the forefront of discussions in the EC. It is an issue that will be dealt with at EC level in any event.
I am happy to withdraw the amendment. I would be very concerned if there was any movement of company headquarters out of this country. It is true to say that companies such as Smurfit, CRH, GPA and many others do not have to locate their headquarters in Ireland. The growth in their business is on the international side, not on the domestic side, because there is only so much growth one can get out of a market with 3.5 million people. That trend will increase in the future whether we like it or not. The tax system should favour the retention of the HQ in Ireland where possible so that decisions to stay in Ireland are not just based on sentimental reasons but that there are good logical economic reasons for doing so.
I agree fully with the remarks of Deputy Yates. We have only a small number of world leaders in the business scene. Although we might be accused of listening to them too much, I still think that in these circumstances we have to facilitate them. Even in large countries the system bends over backwards to help their own parent companies. In the case of the companies mentioned and a few more, we must, through our tax and industrial policies, not just appear to be helping them but actually help them.
Amendment No. 117 in the name of Deputy Yates proposes to insert a new section. Amendments Nos. 123a, 123b, 123c and 123d are related, so it is proposed to take amendments Nos. 117, 123a, 123b, 123c and 123d, together by agreement. Is that agreed? Agreed.
NEW SECTION.
I move amendment No. 117:
In page 73, before section 32, but in Chapter VI, to insert the following new section:
"32.—Section 39 (6) of the Finance Act, 1980, as inserted by section 47 of the Finance Act, 1992, is hereby deleted and substituted by the following in respect of accounting periods ending on or after 1 April, 1992:
‘(6) (a) (i) For the purposes of this subsection "newspapers" means newspapers, normally published at least fortnightly, the contents of each issue of which consist, wholly or mainly, as regards the quantity of printed matter contained in them, of information on the principal current events and topics of general public interest.
(ii) For the purposes of this Chapter, where in a relevant accounting period a company renders advertising services in the course of a trade carried on by it and which consist wholly or partly of the manufacture of a newspaper, then any amount receivable in payment for the rendering of such services shall be regarded as an amount receivable from the sale of goods.
(b) For the purposes of this Chapter, where in an accounting period ending on or after 1 April 1992 a company renders advertising services in the course of a trade carried on by it and which consists wholly or partly of the production of a magazine or other similar product, then—
(i) any amount receivable in payment for the rendering of such services shall not be regarded as an amount receivable from the sale of goods, and
(ii) for the purposes of section 41, the company's income from the trade for a relevant accounting period shall be regarded as not derived solely from the sale of goods and merchandise.'.".
One of the difficulties I had in tabling these amendments was that I did not have available the Minister's proposals in relation to the tax treatment of 10 per cent corporation tax on advertising revenue of newspapers. Therefore, I did not have an amendment to amend, as it were. The Minister can let me know what his amendment proposes to do and I will explain the purposes of my amendment No. 117.
As I understand it, there are three types of newspapers. There are newspapers that do everything themselves. They edit, publish and do the physical printing process all in one. Then there are others which have two or more companies, a sales company for the advertising revenue, a distribution company perhaps and a manufacturing company. These may be separate but they are owned by one parent company. Thirdly, there are provincial papers and others who do the publishing. They put the actual plate together, but there is a separate publishing company somewhere down the country.
The National Newspapers of Ireland Association has made representations to all Deputies about the difficulties they are currently experiencing in relation to the increase in imports of newspapers and in relation to their basic lack of profitability. With the change in the broadcasting legislation vis-�-vis advertising revenue, they fear this situation will worsen.
It is agreed that the first two categories will qualify. What has been sought here is that in all three types of newspaper, including those where the publishing and printing company are separate, the publishing company, not just the printing company, will be able to avail of the 10 per cent corporation tax rate. That is the purpose of my amendment. I think it is not unreasonable, given that the Minister advised the House both at his press concerence and on Second Stage that, given the difficulties of newspapers, he intended to give their advertising revenue the benefit of this. I hope the Minister can confirm that virtually every newspaper in the country will benefit.
I would like the Minister to clarify what a newspaper is. Is the Dandy comic or isGael Sport a newspaper? What is the difference between a magazine and a newspaper? Are free sheets newspapers, or are they magazines? I do not know ifSouthside is still in publication but, if so, is it a newspaper, or was the Dublin Tribune a newspaper? Obviously this is a contentious issue because certain publications consider themselves to be newspapers and others do not. Will the Minister clarify that?
Taking the totality of this year's budget, between indirect tax changes and this proposal, what does the Minister believe the implications are, in net terms, for the newspaper industry in Ireland, however defined? If I were to publish a fortnightly constituency newsletter, could I be incorporated for manufacturing tax purposes?
Deputy Yates and I are not too far apart on this. Deputy Noonan and I debated this last year. The argument was being made at that stage by one group. I gave an undertaking that I would look at the broader issue of the provincial newspapers and the national dailies. I intended to do so in time for the second Finance Bill. That was overtaken by other events in the autumn but I got around to it after Christmas.
Deputy Yates has followed this almost to completion. There is a fourth type of newspaper which I did not think existed, the newspaper that is published in Ireland, on which all of the work is done in Ireland, but which is printed outside the country. That is another category that would fulfil all the criteria, but on a weekly basis.
The definition of a newspaper states that the contents of each issue must consist wholly or mainly, as regards the quantity of printed matter contained therein, of information on the principle current events and topics of general public interest; the format must be what is commonly regarded as newspaper format; it must be printed on newsprint and it must be sold to the public. It must normally be published on at least a fortnightly basis. That includes all the national and provincial newspapers.
I accept what Deputy Yates said regarding his amendment. I undertook last year to examine this issue and I followed through on that. The Deputy's amendment seeks to allow the 10 per cent rate of corporation tax apply to income from advertising service provided in the course of the newspaper production. The objective is achieved by amendments Nos. 123 (a) and 123 (d) in my name. I presume in the circumstances that Deputy Yates will be satisfied with that.
Amendments Nos. 123 (a) and 123 (d) provide that income from the production in the State of a newspaper, which is published at least fortnightly, for sale to the public, is to be regarded as income from the sale of goods. This is to apply irrespective of whether the income arises from the sale of newspapers or an advertising service provided in the course of production of the newspaper and whether or not the paper which produces the publication actually prints it. That provision takes account of what a number of newspapers do.
Section 47 of the Finance Act of last year disqualified income from advertising service provided by newspapers from the 10 per cent rate of corporation tax. I have reviewed the position having regard to developments in the industry and the likely future developments. We have decided to allow the 10 per cent corporation tax rate to apply to the full income arising from the production of a newspaper. The new legislation will apply in respect of accounting periods ending on or after 1 April of last year. I commend the amendment to the select committee.
Amendment No. 118 is in the name of Deputy Yates. Amendment No. 121 is an alternative. Amendments Nos. 118 and 121 may be taken together, by agreement. Agreed.
NEW SECTION.
I move amendment No. 118:
In page 73, before section 32, but in Chapter VI, to insert the following new section:
"32.—Section 32 (2) of the Finance Act, 1976, is hereby amended by the deletion of ‘£10,000' and the substitution of ‘£15,000' in relation to the maximum claimable capital allowance on a car in any tax year.".
This relates to the motor car. I was reading the debate on last year's Finance Bill and noted that much heat was generated about the tax treatment of cars. This relates to the capital allowance provision. At present one can only write off £10,000 per annum for a car. For many people a car is a tool of the trade and is not a personal perk. Given the price of cars, £15,000 is not an unreasonable figure because, for most people at executive level, it would not amount to anything like 100 per cent depreciation. Groups such as the Cork Car Sales Representatives Association are still aggrieved in relation to their cars. The change in the benefit-in-kind which took place in recent years has meant that the cash equivalent value of the car is now taxed more heavily than previously.
This is part of the brain drain question. If people want to head-hunt the best people to run a business, they must be able to give them a salary commensurate with their talents. Part of the attraction must be a car. In particular, for marketing and sales representatives it is absolutely vital.
I could have included a higher figure which I could also justify but I inserted a low figure in the hope that the Minister might break with precedent and the bulky files in front of him and accept what is a very reasonable and modest measure which I am sure will have very limited impact on overall income tax and corporation tax revenues. I ask the Minister to accept the amendment.
Like Deputy Yates I researched the various Acts that introduced this concept. From what I can make out this issue first saw the light of day in 1973. It has to do with allowing a capital allowance for the company involved in respect of the provision of cars to employees, not the benefit-in-kind for the individual employee. It was introduced in 1973 and has been amended a few times. The value was £3,500 in the Finance Act, 1976 and it was brought up to £10,000 last year. It had not changed for a very long period. I am not sure of the exact value at the time it was introduced.
It was £2,500.
I tried to establish from talking to a few people in companies, what kind of a car one would get for £2,500 in 1973 and what kind of a car one would get today for £10,000. What was the intention when this was introduced and what is the practice today? It was introduced in 1973 in a particular context, because that was the period when we had the first oil shock and there was an attempt to try to promote the use of smaller and more economic cars rather than very large cars because of all the import implications, the oil price implications and so on. Just to take the price of one brand, the cost of a Ford Granada in 1973, looking at today's price lists, the allowance is such, even though it was adjusted last year, that you would probably be talking about buying a Ford Fiesta for the same price. I know very few companies with reps on the road — reps who need to carry samples around and who do very heavy mileage — who would put their reps on the road in Ford Fiestas, given the kind of mileage they do and the volume of material they move around with them.
The second point I would make to the Minister concerns the whole process of getting at the "gas guzzlers", as the States would have called them in 1973. This comes down to the smallest type of car in respect of the value of the allowances. As the Minister knows, a formula is operated whereby the greater the value of the car above £10,000 the more diminished is the write-off value in terms of tax deductability to the company involved.
Deputy Yates talked about the remuneration package for executives, the brain drain and so on. I do not disagree with the point he makes, but there is a more basic point than that. Many companies rely heavily on selling through sales reps on the ground. In that case and in the case of the distribution network of a very large number of Irish companies, cars are not provided as some perk to avoid brain drain or anything else. The car is a very essential basic tool of their trade. In that context I know of few fleet managers — perhaps people in the Department of Finance and the Revenue Commissioners know differently — who want to put a Mercedes under the bottom of their sales rep if a middle range executive car will do the job perfectly well.
Deputy Yates has hit on a figure of £15,000 and I hit on a figure of £17,500. But, whatever the figure is, it is basically saying there is a middle range executive car which is the typical thing. I do not know of any reps who go around on long distance calls driving a Renault 5, Ford Fiesta, Suzuki Swift or whatever. That is what you buy with the kind of allowances there. I will make this point to the Minister in respect of the present BIK. Although there is a capital deductibility given to the company in respect of what we are now discussing, you make good — certainly after last year — on the swings what you might lose on the capital deductibility roundabouts.
It seems now that the level of taxation in respect of the provision of vehicles to employees to imposing an undue burden of tax on both the employer and the employee. Although there was a significant change last year, it has failed to keep pace with market realities. Certainly, I am not suggesting that the Ford Granada equivalent be now accommodated, because I would have suggested a much higher deductibility if I thought that. There is a serious case to be looked at in respect of this. Taking into account all of the taxes now levied on cars at both ends of the scale between company and employee, I suggest that the dip into the pocket is too deep and should be looked at.
I support both Deputy Yates and Deputy Cox on this amendment. What you are getting now in relation to cars for company executives is almost a double family now. Certainly, if one takes a case of any executive in any company, that person is not getting a taxable perk but something which, as Deputy Cox rightly says, is a tool of the trade. It is not just a case of long distance reps, but anybody selling in any capacity in, for instance, any marketing company here, where a car is a necessity. This tool is a necessity for the business one is carrying out.
The type of car that is used is not the bottom of the range. In business, prestige is taken into account. It is not the prestige of the individual, but the prestige of the company. Whether that is right or wrong, it is a fact of life. There is a reasonable compromise in relation to the type of car — a mid-range executive car, something like a Carina. I do not know how much it costs, but it certainly is not £10,000; it is a hell of a lot more than that. These amendments reasonably seek to have the present day value of cars taken into account.
I would exhort the Minister to be sympathetic to the amendments proposed by Deputy Yates and Deputy Cox. I strongly believe that a car is a necessary tool of the trade. Just to add what other speakers said, taking the case of the self-employed and others who can claim capital allowances, the position has been that it was only £2,500, then it went up to £3,500 and then up to £6,000. It was very slow in keeping pace with the rate of inflation and certainly with the rate of car price increases. It only reluctantly was increased to £10,000. My view is that it will stay there forever unless some movement is made now.
This would not cost the Minister the world because of the way capital allowance is structured. The self-employed and so on are allowed to claim only 20 per cent initially and then allowed only two thirds of that, because one third of it is disqualified for private usage. Therefore, it will not be any great drain in relation to any impact it might have on finance. If it is raised to £15,000, that is only the price of an ordinary car. A Carina actually costs about £15,500 now, so it does not even catch the Carina mark II, which is a very ordinary car. I would like the Minister to account this amendment because it will not have any major impact in relation to finance.
If I gave Deputy Cox some of the history of this, it might be useful to put it on the record. Prior to 1973 the capital allowances for tax purposes were calculated on the full cost of the car used for business purposes without any limitation on the cost of the car. Sections 25 to 30 of the Finance Act, 1973, impose a restriction whereby, if the cost of the car was in excess of £2,500, no relief was given to the excess. Deputy Cox was asking us to allow full relief for medium priced cars but to limit the capital allowances made in respect of the more expensive cars on the basis that these would be chosen generally for other than commercial reasons. This still happens in certain areas but not in the ones we are talking about. The maximum allowance was raised to £3,500 by section 31 of the Finance Act, 1976, to bring it into line with the current car prices at the time. At the same time section 32 of the Act introduced a restriction on the tax deduction for running expenses. Where the cost of the car exceeded £3,500, expenses allowed annually were reduced by one third of the excess of the cost of the car over £3,500, or, at the option of the taxpayer, by the proportion that the excess of the cost of the car over £3,500 bears to the cost. The restriction on capital allowances and car expenses applied to employers, the self-employed and employees using their own cars in the course of their employment.
In more recent times the capital limit was raised, both in the case of capital allowances and car running expenses, from £3,500 to £4,000 in 1986, then from £4,000 to £6,000 in 1988, from £6,000 to £8,000 in 1989, and last year I moved that from £7,000 to £10,000, which has been acknowledged here, as a substantial increase. Quite frankly, this year I did not look at it because the budgetary position was so tight. Many desirable things that would have been looked at in a normal year could not be considered.
Just to take the points that were made here this morning, both amendments seek to increase the current capital value of £10,000 used to determine the capital allowances being granted for tax purposes in respect of the cars used in the course of a trade or professional employment. In the case of Deputy Yates' amendment No. 118, the value would increase by 50 per cent to £15,000 while in the case of Deputy Cox's amendment it would go up 75 per cent to £17,500.
I presume the Deputies would also require the related capital value to increase in the case of running expenses of the car. I accept the Deputies are taking an amendment for illustrative purposes. Deputy Yates' amendment would have a small cost in 1993 but as the cars are chanaged in 1994 the full year cost would be £13 million.
There are many makes of cars. The difficulty — I raised this last year as Deputy Rabbitte will recall — is that when we did the examination on the benefit-in-kind we found pro rata we came out the highest on the company car. This surprised us and in the debate we wondered why the costs were so high but we found that we came out on top. The survey by the Financial Times had us top of the OECD list for the number of company cars. Obviously, it was a tax driven measure. That is why any increase, while it seems not to be very great would cost a great deal.
Deputy Cox's amendment would cost £17.4 million. These increases would follow on a substantial increase of more than 40 per cent last year, which I did in conjunction with the benefit in kind. On budgetary grounds, there is no way I could change that. Deputies Keogh and Penrose have made the case on this. I undertake — there are valid points following the history of this — that I will review this matter again for next year. It would probably be more satisfactory if it moved on an annual basis. If it had moved on an annual basis since 1972 we would not have had to debate it in the first place. I will look at it again because there are good arguments to try to keep it in line and keep the costs in line.
I note in particular one part of the Minister's response where he said the intention in 1973 in changing the regulations was to get at the top end of the market in terms of cars but that cars would fit into the normal medium end of the scale and be commercial, as it were, were not intended to be included. This raises a point we discussed yesterday and on which the Minister poured some scorn. This is precisely the point about indexing. The Minister told us what it would cost to give this back. The Minister started off cutting out fat and then got down to cutting muscle. That is what this is doing by the failure to index bands.
I am pleased to hear the Minister say he will review it. He said it is a cost to the Exchequer but, in fact, it is a dipping into the business pocket by £17.4 million or £13 million more than would be the case if the intention was as the Minister said, not to get at medium sized cars. It is the classic case where a failure to index certain things brings people into traps that were never intended.
When we worked through the different sections yesterday I tabled only a very minor amendment on exemption limits and marginal relief on section 1. I did that deliberately because I know that each of the items I could make a good case for are very costly. I put down a yardstick in respect of the Culliton report and how much the standard tax band had changed but I withdrew the amendment because I do not presume the Minister is a magician and could do it in one year. I was not very impressed at the step he is taking this year out of a four year programme.
In each of the cases I tried to take what I regarded as a pretty rational view which, if I were in the Minister's shoes, I would try to argue for. The difficulty, when it comes to the Revenue Commissioners and the Department of Finance dealing with the business sector in general, is that they seem to go beyond a point which seems to be out of sync with a understanding of how business works. This is a significant and classic point.
Yesterday we did not get a chance to discuss it. I am not going to open up this whole issue. These new P11 D Forms — Deputy Yates and myself have some material in on this — are issued automatically by the Revenue Commissioners who want to know, if you follow the logic of that with no de minimis rule, everyone who is employed with an income of about £1,500 a year. If a bus fare is given to the tea boy it has to be accounted for.
That is nonsense. They could not cope with the volume of work if everyone filled out the forms. The business sector cannot cope. It is such matters that make business people sick and tired of the red tape and the way the Government treats them.
I appeal to the Minister to consider this before Report Stage. I know there are budgetary dimensions to be considered. However, if he believes like some of his colleagues that money is about to fall from heaven under the tax dodgers charter, as Deputy Rabbitte described the new measure, the Minister will be flush with funds this year.
First, I welcome the Minister's commitment to review this. I hope the review will be at a reasonable level. We did not debate the form P11D and I wish to make a passing comment about it, like Deputy Cox. I have been inundated with representations from employers, particularly those with small businesses who are put to great bother when these forms arrive from the Revenue Commissioners. They imply that if an employer gives an employee some sweet-cake, or a bottle of whiskey at Christmas he or she has to declare it. It is absolutely outrageous and it is as relating to defined employees who are high earners. The definition of high earner is somebody who is on £1,500 a year. It has not been changed since 1958.
Yesterday we spoke about entrepreneurs and trying to encourage 1,000 people a year to avail of a seed capital scheme but this provision sends people bananas. It drives personnel managers to distraction because they want to comply. Personnel managers of companies employing say 100 peoole who are only doing an honest day's work for an honest day's pay, are very fearful that minor matters could put them in serious tax difficulties because of the P11D forms. The whole question will be brought into disrepute if serious tax evasion is to be rewarded, if major breaches of tax law and tax evasion are to be undetected while the people who comply with VAT, corporation profits tax, PAYE and PRSI and now the levy have to adjust their computerised software programmes for tax deduction systems at source. They have to engage in more form filling detailing every little item an employee received. If they got tyres on their car and so on it will have to be declared. Even if they get tickets to a soccer match it will have to be declared. We have reached the point of farce. The Minister, whether by legislation or regulation, should change this.
What is evident in these measures is that we are talking about people who know very little about business and how it operates. Those of us who come from a business background know what happens. People do their best, they try to comply as best they can with regulations and so on. The Minister is encouraging under-the-counter payments when he is penalising people. That is the only way to put it.
Business is about making profit and creating employment as a result. It is not about bureaucracy and filling up forms. It is not exactly a big secret that I am revealing. Everybody knows this. A business is not like the Civil Service. Items like this, if I may say so, are a Civil Service response to something that unfortunately they know nothing about. Anybody who is trying to make his way in business today will tell you this.
The Minister must look on these matters from a business perspective. I am not talking about the major capitalists of this island. I am talking about the people who are trying to earn a living, who are employing people,who are having to cut back all the time and who are paring away day after day. The Minister is creating another disincentive to work.
I would like to support my colleagues on both sides in what they are saying. The impression outside the walls of Leinster House and outside Government institutions is that the Minister is only listening to those who never before have had to risk their own money. I ask him to get in touch with reality urgently. There are no jobs in the form-filling industry. Perhaps somebody has told him there are jobs in that industry because that is the only industry he is servicing with this nonsense and the road we are now going down. Would the Minister please listen to those who are trying to do right by their country, who are trying to invest in order to create a profit that will employ more people at the end of the day? If the Minister hounds the business community to such an extent they will go elsewhere. They will not invest their money for 10 per cent deposit interest retention tax even though it is very attractive. They will move elsewhere to get the challenge they want from life to use their abilities to develop business. The Minister should get in touch with reality and go through all the legislation he deals with, particularly this Bill, and remove bureaucracy, red tape and regulation from the lives of our businessmen and women, the very people we are looking to to redue the dole queues in the country.
This is quite an amusing debate. I would have thought that Deputy Doyle would, her party having been in Government during the eighties when they drove all the money out of the country and brught in all these regulations, have learned ten years on that it was a disaster and that is probably why we have 300,000 people unemployed.
The poor politician——
People do not remember when we were last in Government it is so long ago.
I acknowledge that these were mistakes. Unfortunately, like the one we are talking about, the first mistake was made by the Deputy's colleagues in the 1973-74 Government and they continued to make it even worse in the 1984-85 Government.
Could we have the Minister without interruption, please?
I know it always hurts when they have to listen to this——
If Deputy Doyle would allow the Minister to finish, we will give her the same opportunity to defend her ability to do something about it previously.
In this Finance Bill we have tried to rectify this. I was quite pleased to see yesterday, even though it was not exactly what was picked up in some of the morning newspapers, that the Committee were quite satisfied with the enterprising move we have made in a number of areas. There are 21 of them in this Finance Bill that will help people in one way or another. That has been acknowledged. I would be the first to agree that some of these things are over bureaucratic and we are moving away from a number of them and trying to improve the position.
I would like to make a point in relation to the difficulties we have when we are talking about Culliton and tax. Culliton — and I know Deput Cox agrees with me on this — recommended that we do away with the 10 per cent rate of tax, manufacturing tax, and do away with all the concessionary benefits——
Deputy Cox will recall that one of the great conflicts in the life of the last Government was that the Minister for Finance of the day and the Minister for Industry and Commerce were totally at loggerheads for a long time about moving the 10 per cent tax. The intention of that Minister for Finance was not to move the 10 per cent tax for the extended period. If that had been the case, if they were paying a realistic amount of tax, then it would be possible to do away with many of these concessionary benefits. That is a fact. You get a realistic level of tax. What happens in this country is that a 10 per cent company can write off so many things which may be half-baked, under a whole wad of sections in Finance Acts over the last 20 years, end up paying about 3 per cent tax to the State. That is the difficulty. If they were paying 25 per cent tax to the State then you could give them the whole lot, indexed and doubled, etc., and you might get 10 per cent tax from them. That is the fundamental difficulty. We should be honest enough to accept that.
I stringently blocked the introduction of fringe benefit tax last year and refused to bring it into the 1992 Finance Act because I thought it was daft and would have chased everyone around the country. I sent an official to New Zealand because I was told they can solve everything in New Zealand. In actual fact it nearly put them down under in real terms. They are already down under far enough in geographical terms. I studied it and it made no sense. It was a tremendous bit of ideological taxation nonsense. To try to move to do something in that area I looked to see if there was anything on the Statute Book similar to this and I found that in 1967 there was a like practice. The form that was sent out recently was something that was in under the 1967 legislation which was in place of the fringe tax. I equally have to say——
Does the business community really need another form at this time and more regulations?
The issue was that we blocked what would have been a far more onerous tax which I felt would have tied down business people. I accept what Deputy Yates said. The form was out when I saw it and I have received the same level of representation. Changes can be made and whether they are made by a code of practice or a circular to the people who got it, I do not know. It is far less onerous than what was there.
A final point on this issue. I moved to 40 per cent last year, which was a huge increase. Maybe it was 40 per cent on a low figure but, quite frankly, it still is fairly low. I have already indicated that I would look at that in the course of 1993. The reason I cannot do it this year on Report Stage is because of the cost factor in 1993.
In relation to the P11D form I can see a kind of conceptual logic to it. It is trying to get at some comprehensive definition of income in terms of the tax base. So far as it goes in that domain it makes some kind of logical sense. The difficulty with it is that the Minister said it was in the Income Tax Act, 1967. It may have been there even longer.
It was used from 1967 on in different ways using different forms. It was used on and off. Last year, instead of the fringe benefit tax, I used this. Perhaps it has not been updated. We will certainly look at that.
The difficulty with it is that there is one very fundamental change that occurred in tax regulations between 1967 and now, that is, that — and it is a good idea and generally experience with it has been positive — we now have self-assessment. With self-assessment you also have a series of audits which take place. If you are audited and discovered not to have declared some of these things in your P11D because they fitted into this comprehensive definition of income with no minimal or de minimis rule attached to it, you end up in the position where companies are liable for penalties, interest and so on from day one.
When the system was the other way round, when it was not self-assessment, what actually happened in practice was that these forms would go out, whatever number was on them, and most sensible people put them in the dust bin. The Revenue Commissioners were so busy that most of the time they never followed them up. The result was that it was legislation honoured only in the breach. Now what has happened because of self-assessment is that people cannot afford to regard them as idle and indifferent notes that have come from Revenue. Because of the way the system is computerised they are flogged out by the hundred and the thousand at the push of a button and because they apply to everyone in a company whose income is more than £1,500, again thanks to non-indexation which you say is not an issue but is an issue. This takes in the cleaning lady, the tea boy and anyone else there who is earning £30 has to be accounted for for every expense, every benefit in kind and every single penny they get. Of course, it is as ludicrous as it is extreme and it will fall anyway, because people could not account for every cup of coffee they bought and so on, but it is a real problem. It makes a farce of the laws simply because you are right to try to get a broader definition of income. I salute that much because it is a part of extending the tax base, but it has to have credible limits, to mix credible with business, and if you can look at that operation this year not put it off for a year, I would plead with the Minister to look at it.
I would ask the Minister to raise the £1,500 to somewhere around £10,000 or £15,000, because I think that is something specifically within the Minister's control. I would ask the Minister to consider that.
That is not really the item we are discussing but I will look at the limit. We want to make the system operate. It is better than going into a whole new legislative area. There has already been some discussions — I am not too sure about conclusions — between the professional bodies about the form. Maybe they have already moved on that but I will certainly follow it up next week.
Amendment No. 119 is not in order.
I accept your ruling, Chairman, but in accordance with precedent I want to make very brief comments on it.
Be very brief, Deputy Rabbitte.
If you do not allow me to do that, Chairman, I will speak to the section for an hour and a half. I am rather surprised, and it is instructive in its own sense, that it is ruled out because, as you say in your letter, it is a charge on the people. It is extraordinarily timely that it should come up in the wake of the discussion that we have just had. The Minister has rightly made the point about the 10 per cent regime. I think you could make more severe remarks about the non ten per cent regime, when he says the effective rate of tax paid by the ten per cent manufacturing regime is of the order of three per cent because of the number of write-offs that are available. We are talking about the most major and the most successful companies in the country.
I agree, and the Minister for Finance knows that I took a view on the extension of the regime to 20 : 10 and so on. But so be it. It is done and what I am seeking to do here. It is one of our difficulties here, when we argue for reliefs, PAYE or other reliefs, and suggest where the money might be found it is not in order. I am sure the Minister will give me figures now to show that over the last three or four years there has been an increase in corporation tax. The fact is that it is still comparatively very small and, of course, that increase is from a low base.
I have raised this matter before. Rather than have the ad hoc way by which we decided to extend the regime a couple of years ago to 20:10, it would have been much better to look at the idea enshrined in this motion. I would be glad to interact not only with the Minister but with Deputy Cox and Deputy Yates on the concept of an alternative minimum tax which applies, for example, in large parts of the United States. It specifies that rather than having these national taxes of 40 per cent in the case of the non-manufacturing regime and ten per cent, there is an effective rate calculated on normal accounting principles and separate from franked investment income of a 20 per cent rate on profits. Then we could effectively tackle a great many of the annoyances that Deputies Yates, Doyle and Cox have raised in the previous discussion. I do not think anybody can argue that the successful major companies, for example, that we have attracted in here on generous terms should have the kind of tax environment that they have where, in the Minister’s own words, they effectively take in in aggregate closer to three per cent than ten per cent. That is crazy. You cannot expect the people paying personal income tax and so on to continue to carry the cost of running this State. I regret that the matter has been ruled out of order. In fairness to the committee, I will leave it at that but I would ask the Minister and his advisers to look at this. My amendment accepts the fact that we have got a 10 per cent tax regime now. Therefore, the alternative minimum tax would apply for only 50 per cent in respect of that category because we have made a contract with these people and I do not see how we can break it.
It is something that we have to look at and you cannot keep coming back with income levies and other stratagems to get money from the PAYE people. We have to look at a fair spread. I believe that it is a nonsense to be talking about a 40 per cent rate. Any intelligent tax adviser — and most of them, whatever else you might think about them, are intelligent — who would allow a company to pay 40 per cent corporation tax would be sacked and be replaced for the next year's returns because there are various ways of minimising it and we would be better with an alternative minimum effective rate.
I want to refer back very briefly to the point the Minister made in this regard. I would agree with what Deputy Rabbitte said. I would be happy at some stage if this Committee came back to this. There is a good issue involved which is worth thrashing out. I would certainly support that. In the past few years, the level of corporation tax has trebled or quadrupled compared with what it was only a few years ago. In fairness, given that the political point was made across the floor I might revert to a few facts. The accelerated appreciation allowances have been done away with; the export profits tax relief which allowed for zero taxing died its natural death; section 84 loans have been very substantially wound down, although not entirely; depeciation now is net of grants, which was not the case before, and the ability to start fiddling around the edges other, than due depreciation which a company is fully entitled to under normal accounting and which Deputy Rabbitte would not be contesting, has been considerably changed. Those changes are very significant and have brought in a great deal more in corporation tax.
I would be interested in the Minister's comment but personally I would be shocked if the effective tax rate is as low as three per cent on due and properly accounted and depreciated accounts for the Irish corporate sector. If it is, there is a very serious issue to be looked at, but I understand that that the winding down that has occurred in recent years has resulted in a very substantial increase in corporation tax and the effective tax rate and the actual tax rates that are suggested must have converged very substantially over that time.
I suppose this is an interesting debate but we are going outside the discussion. Just to be brief about it, I think both Deputies are right in arguing their different points. There is no doubt that the position has improved radically over the last number of years. The tax reforms of 1988 reduced tax rate and broadened the base of phasing out the accelerated capital allowances. That was a big consideration.
Self-assessment for companies was introduced in 1989 and that resulted in more timely changes in corporation tax. I made changes in that last year and again this year we had some tightening up in that area but still it is a generous enough scheme. One of the main contributory factors of the increased tax take from companies is the improvements in profitability as well. Their competitive advantage over the past number of years, when analysed in any of the surveys, has improved. The surge in corporation taxes in 1991 was largely attributable to that factor. In the last quarter of 1992 when we ran into difficulties, that altered.
Deputy Cox is right in saying that companies which formerly benefited from the export sales relief lost out to the tune of about £75 million in corporation tax. Companies operating in the financial services centre are now in. The profits from there in corporation tax last year were over £70 million. While some people might have some criticism about the IFSC it has been a very good for the state and there is no doubt about that. It has gone up each year. It was £40 million the year before and £20 million the year before that. It has gone up quite dramatically and it is hoped it will be up to around £100 million if not this year, next year.
The point I was making was that if we had a higher rate it would be easier to give many of the concessions you would like to be given to the company who is changing and putting money into the economy. The figures for the past two years now that 35,450 companies made corporation tax returns, 18,852 paid tax and 16,598 had no tax liability. That amounts to a big number of companies. Out of the 18,852 companies, 16,683 paid corporation tax only, 334 paid the accelerated corporation tax and only 1,800 paid both. In 1986 corporation tax was only 4.2 per cent of the total tax take and for 1993 the percentage is estimated to be 8.3 per cent.
On the point of being able to give the various concessions one could give off a higher rate, I have a note on that which suggests that from the data base they have a minimum rate of tax on accounting profits would be unlikely to yield significant revenues and this is because the increase in the corporation tax yield in recent years has been driven mainly by extra tax payments from manufacturing multinationals and from the IFSC.
What about the 3 per cent point Deputy Rabbitte made? If that point was true it would be very disturbing in terms of the effective tax base, not the Mickey Mouse tax base, but the actual corporate tax base. What is the effective rate of tax in terms of the actual base?
We do not have that information. The Deputy as Finance spokesman for his party, and senior politicians in parties, meet with businessmen and look at figures. Every morning I look at reports. At a recent dinner for accountants I was at a large table and I asked if anyone at the table paid 10 per cent. I did not get into the exercise of how many paid 8 per cent or 9 per cent but they all agreed that there was nobody paying 10 per cent.
How many companies did you say, Minister, had no tax liability?
I had better not give a percentage. Out of 35,450 companies, 16,598 had no tax liability. It was partly props and partly reliefs. It would not be fair to say that they were dodging because they had no liability. These people had returned their accounts and were totally compliant taxpayers as far as I am concerned.
The figures they returned showed that that was the position. Part of the reason is because we have these hosts of things which Culliton talked about. I agree with the Deputy. I had a "go" at a number of them last year and we all know what the consequences of that were. I brought the country down on top of me. I did not change and stood my ground on it, but Deputies can see my difficulty about it. If that 10 per cent were 25 per cent you could increase many of these and undertake many other desirable ones which I come across during the year when I meet the business community.
Those figures would include the small private family companies which pay its profits to their owners as a salary. Deputy Keogh was talking about some of those companies earlier. Whatever profit they make is actually the salary of the family. They are paying PAYE.
I have not got the other figure but it would be an interesting one to consider.
The Revenue people tell me they are trying to develop a model which will be able to cost the impact of the minimum corporation tax rates and this will give definite answers for the first time this summer. If Deputies look at the accounts, or any of the figures I gave, they can see the position for themselves.
As a matter of interest, if it turns out one way, Chairman, it will emerge that you were wrong in ruling my amendment out of order and if it turns out the other way, which is the way I believe it will turn out, it will make a point and it is one that has to be examined.
Wiser heads than mine ruled your amendment out of order.
Wisdom does not always go with dignity.
Amendment No. 120 is out of order.
I can understand how it can be said in respect of 119 that it proposes a tax on the people but I am surprised, having regard to the Minister's comments during the currency crisis, that this amendment is regarded as a tax on the people. That is not the way he was describing them at the time of the currency crisis. I am surprised that no attempt has been made by the Minister, and his advisers, to frame an amendment for this Bill that would address the phenomenon that he and I condemned, and a great many others, at the time of the attack on the currency. Many people involved in the speculation against the punt on that occasion were doing so as part of their normal prudential business but a great section of it, at least one-third I am advised and probably more than that, was pure speculation for gain. The Minister was extremely stressed about it at the time.
We do not have to go back over the impact that had on the economy and on people paying mortgages, those trying to run businesses and buy money from the banks and so on. I am very surprised that no attempt has been made by the Department of Finance to address the phenomenon. I am also surprised, having regard to the fact that the Governor of the Central Bank, who advocated such a measure in one of the times he very rarely broke cover during the controversy, has not advised on what kind of amendment ought to have been constructed to deal with this phenomenon. I have attempted to do so, very imperfectly I am sure, but I am happy to leave the drafting of it to the Department of Finance.
It is something that ought to have been addressed. We may have had a good run since, and I will not go into whether it was the excellently judged budget, the phenomenon of devaluation or whatever that was the reason for it, that debate is over. It is very wrong, as I am quite sure the Minister and his advisers know, to presume that we will not have to go down this road again. We cannot make any judgments about the way sterling will go.
Quite frankly, having regard to the way the market views our relationship to sterling it seems that our rear end is out the window if the same thing happens again. It seems that whatever instruments are available to the State to cope with this phenomenon next time round we should have it in place. The Finance spokesperson at the time privately seemed reasonably confident that they could cope with it. I know that exuding confidence was part of what was required in the circumstances, but at the end of the day the confidence crumbled and we were not able to cope with it. If we have learned lessons and if there have been inadequacies in our defence mechanism to cope with that, then we should have addressed them in this Bill.
I want to assure Deputy Rabbitte that the matter was examined in the preparation of this Bill and is still under examination. It has proved extremely difficult. We have looked at a form of withholding tax, but to operate it would effectively hit everybody and people who were doing normal forwards during the currency crisis or were involved in stocks would also be hit. This would be very unfair because a lot of these were genuine people who were trying to take the hit of the currency crisis and were operating in other currencies to try to forward buy and keep their businesses going. It was not possible therefore to do that.
In the last weeks of the currency crisis the people who made the killing were people who never deal in this country. They were outside institutions and outside banks, and in some cases multinationals, who were buying Irish pounds. They saw an opportunity and in one of the last days there were about 85 or 86 financial institutions dealing in the Irish market where in a normal day there might be 15 or on a hectic day 25. We had people from Japan, Asia and other places hitting against us. In regard to the ability of the system, I would have taken personal satisfaction in finding a mechanism to overcome that, but unfortunately it has not been possible.
There are other reasons why it is difficult. There are no precedents for measures of this kind, although other currencies have been targeted. I looked at that and talked to some of my colleagues, particularly Mr. Solchaga of Spain, who had been under tremendous pressure. They have devalued three times and they are now down to 19 per cent. Trading continues and interest rates on Friday were 13 per cent. It is the same with Portugal. Many of the transactions were putting pressure on our exchange rates and, while we can identify them in conjunction with the Central Bank, it is very difficult to trace them. I know the Governor of the Central Bank is examining some of these issues. The Irish speculators can move speculative transactions outside the scope of Irish tax by transacting them through foreign associates. That was one of the great tricks of the trade during the period. I believe that can be examined further because this is where some of our own people are dealing through their own headquarters in working against our currency.
The committee under Dr. Kieran Kennedy working on the aftermath of the currency crisis, are looking at these issues. It is not final. The Central Bank reports, NTMA reports, Department of Finance reports are available to that committee, which is made up of academic people with expertise, trade unions and business people who suffered on the wrong side. They are working on these matters and I look forward to their conclusions.
I just want to make a few points which are not very politically current but which need to be made in the context of these comments. If anyone in the Central Bank or the Department of Finance takes the view in present economic circumstances that the punt is worth £1.08 against sterling, do not be surprised if there is speculation, because nobody believes that. In fact, it is not speculation; it just means someone else is out of line. There has been a lot of mythology about speculators, and you do not need to be a Mr. Soras to know that.
The other point I want to make is that the purpose of the IFSC is to encourage currency transactions and international financially traded services into that sector. It was not my brainchild and I have some misgivings about it. But whatever one's view is, it would be very difficult to invent a tax that would not close down the IFSC. That is not to say that I carry any brief for speculators. I am in favour of taxing them as penally as I would for anyone who makes a windfall profit on Mespil Flats or anything else. There is more to this currency business than has been alluded to here.
Listening to what the Minister said about the work being done by Dr. Kieran Kennedy of the Economic and Social Research Institute, it seems that the report of that committee is a matter we might return to as a committee. I would like to propose that we consider doing that at a later stage. The next time our Finance Minister meets the new incoming Spanish Finance Minister at ECOFIN he should advise him that a 1 per cent income levy would get over all of his currency problems.
I have no objection to this committee returning to it, but I am disappointed that my colleagues have not weighed in more heavily with one or other view on this matter.
It is out of order. We wanted to respect the ruling of the Chair.
We do not want to take the gloss off your socialist credentials.
Deputy Rabbitte is well able to defend himself.
I want to draw attention of the Minister to subsection (3) of amendment No. 120 where it draws a distinction, in terms of the defined specified currency transactions, between those entered into for short term gain or profit other than for the purpose of securing against a corresponding loss or liability. The absence of any effective instrument available to this State when the currency comes under attack is the element in our lack of defence that is exploited by the speculators. It would be a better position to have the Central Bank and the Department of Finance making a judgment on whether it was to legitimately secure against loss or liability or to engage in normal prudential transactions with a buying forward or whatever, or whether it was for a short term killing. I understood from the Minister for Finance at the time that it was possible to finger certain major players in the speculation against our currency. If the law is on the Statute Book, then the Minister and his servants and the Central Bank could decide and say: "We have considered this and we reckon that was a legitimate transaction". The Minister then has it open to him and he has the power to say that this was manifestly not a legitimate transaction, that it was for the purpose of a short term killing. We are talking about hundreds of millions of pounds in some cases. The Minister at the time talked about one £500 million transaction. If there were something on the Statute Book, one could have the luxury of judging and it would also act as a deterrent. If the instrument was there, those guys would be far less likely to take the risk.
One could have the luxury of judging and it would also act as a deterrent. If we had that instrument those people would be far less likely to take the risk. I acknowledge that the Minister said the matter does not rest here and I would have a great deal less sympathy with the Minister the next time he confronts this dilemma. I hope it is not soon.
The Governor of the Central Bank clearly believes he lives in a monastery and is not permitted to speak but the one time he did break cover on it he advocated a measure similar to what I am advocating. I would like to know precisely what he thinks and I hope other Finance spokespersons will rediscover their volubility when something does come forward on it.
If Deputy Rabbitte's theory in relation to Irish devaluation is reduced wholly and solely to the question of getting back at pure speculation, he misunderstands the complexity of what caused the problem in the first instance.
