I would like to voice my concern about the inclusion of the Aer Lingus Group public limited company as a withholding tax company. Ryanair and Aer Lingus should be fighting the same battle with the same law applying to both. While the inclusion of the other companies is fine, Aer Lingus is supposed to be a fully commercial company. I do not agree with the idea of a fully commercial company having to make withholding tax in respect of some of its payments. For an architect, engineer or lawyer — we should forget about lawyers because withholding tax and lawyers, barristers in particular, is not a huge issue — acting for Aer Lingus to have 27 per cent of their fee income taken in withholding tax is a serious matter, especially since they could be running a loss making practice. I presume Deputy McCreevy would agree that withholding tax is fine in principle for non-commercial bodies but for a company in the marketplace fighting with Ryanair, British Airways and so on, it is not a good idea.
SECTION 8.
Aer Lingus public limited company is included because it legally changed the title of its company. All the commercial semi-State organisations are included. Withholding tax was introduced in 1987 and it is something at which I will look. It is a question of whether commercial semi-State bodies should be tax gatherers for the State where there is competition. I am informed that Aer Lingus went to the Revenue Commissioners and the Department of Finance some years ago and requested that a number of its subsidiaries, which had not been included in the original list of withholding tax, be included. Maybe it felt it suited them. It sought to have its computer company, which was out in the competitive market, included. I am not sure of the precise reason. I will look to see if we would exclude commercial companies, that is, those in a competitive position.
If they wish they can ask.
I am not aware of any request from a commercial semi-State seeking to be excluded.
What is the reason for extending the withholding tax area considering the level of compliance with the Revenue Commissioner is higher? Who has been pressing for it? Over the past number of years this problem has diminished. While it was a problem in the past, withholding tax got over it, but we are extending the problem now.
The problem has diminished considerably and last year's legal judgment confines it to a current year basis and that reduces the problem further. We have added bodies which were not previously included, either they did not exist or they were not originally included. Its effectiveness is something we might review within the Department in consultation with the Revenue, that is, whether we now need these bodies to have a withholding tax as distinct from State Departments. It is something which has been brought to our attention and we will put it on the agenda for consideration by the Revenue Commissioners. I am concerned about whether it is an efficient minimalist bureaucratic way of raising revenue. If it is not and if there is a better alternative, we should look at it. As long as it is adjudicated by the professionals in the Revenue Commissioners and the Department of Finance to be an efficient minimalist bureaucratic way of raising revenue, my prejudice would be to let it stay.
I am not certain it fulfils the criteria which the Minister has set himself.
I believe the Commission on Taxation favoured its use to the maximum extent. It said withholding taxes were a good thing. It is a handy list for those whose politics include privatisation.
I wanted to make a point on section 6.
Chairman
I will make an exception.
I know of a case where somebody earns £15,000 per annum and has no choice but to drive a vehicle worth £25,000. This is happening in businesses selling stereo and hi-tech equipment; a lot of promotional work is done and unit must be transported from town to town. People have seen their job specification change because they are now directed to tow the demonstration vehicle with a vehicle which must be of a certain size, and bring other staff with them. The person to whom I referred is being crippled financially. The number of such cases will increase as the marketability of products becomes easier and they become more mobile. Could this anomaly be addressed in the context of the Bill because it is grossly unfair? Another consequence is that people who used to travel many miles now spend three days to a week in one location rather than moving on each day. Has the Department been made aware of this?
Chairman
People working in the city have low mileage, but high usage.
We addressed the category to which the Chairman referred, that is, people with low mileage. I pay tribute to my officials and the representatives on the other side who, following a difficult period, arrived at a formula which may work. There are no guarantees that it will work.
With regard to Deputy Cullen's intervention, I am not aware of the precise problem to which he referred. If the people he mentioned are doing much driving, they will obviously receive the tapering relief. However, the cost of the car relative to the cost of their salaries is the disproportionate factor. The benefit in kind will presumably be much greater due to the value of the car. There is no benefit in kind to such people. Perhaps the Deputy could bring the details of the problem to the attention of the Department.
I received a letter from a specific company which I will pass on to the Minister.
We will consider the letter and decide if we are amenable to addressing the problem.
Chairman
Amendments Nos. 13 and 14 form a composite proposal and may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 13:
In page 17, subsection (1), to delete lines 17 to 26, and substitute the following:
"to a person in respect of a right of action in relation to which the person may make a claim to the Tribunal under Clause 4 of the Scheme.".
The aim of this amendment is to give absolute clarity and certainty in relation to the awards which might come from the hepatitis C tribunal established by the Minister for Health. It will ensure that awards made by the tribunal or a similar award made by a court of law are not liable for tax. When drafting the Bill we assumed that this was implicit. The text of the amendment makes it explicit.
Section 9(1)(b) states:
(1) This section applies to any payment in respect of compensation made before or after the passing of this Act——
(b) following the institution by, or on behalf of, an individual or a civil action for damages in respect of personal injury, to——
Is that correct?
Yes.
Mr. McDowell
As it is phrased, the provision seems to apply to any compensation paid to such a person, irrespective of whether it relates to the particular cause.
I am informed that the amendment caters for that.
Mr. McDowell
Yes it does because it is in respect of a right of action.
I move amendment No. 14:
In page 17, lines 36 to 41, to delete subsection (3) and substitute the following:
"(3) In this section——
‘the Scheme' means the Scheme of Compensation for certain persons who have contracted Hepatitis C from the use of Human Immuno-globulin-Anti-D, whole blood or other blood products which was approved by Dáil Éireann on the 13th day of December, 1995;
‘the Tribunal' means the Tribunal established by the Minister for Health on the 15th day of December, 1995, to administer the Scheme pursuant to Clause 22 thereof.".
Will money from hepatitis C tribunal awards which is invested in financial institutions be exempt from tax?
Just the initial payment.
The explanatory memorandum states that the section also provides that awards to such people by the tribunal will be treated in all respects as if they were court awards. This means that section 5 of the Finance Act, 1990, which, in certain circumstances exempts from tax investment income from court awards will also apply to tribunal awards. The Finance Act, 1990, introduced this exemption for a particular reason.
The Dunne case.
That is correct. In what circumstances will the Dunne case exemption apply? I am interested in this because the information is clearly set out in the explanatory memorandum, which gives the impression that an award received from the tribunal or the courts is exempt. If section 5 of the Finance Act, 1990, is applied, the interest arising from investing an award with a financial institution is also exempt. Is that the case?
If the person is permanently incapacitated and if the flow of income from the capital investment constitutes the bulk of their income, that income is not subject to tax.
I accept the Minister's statement. I know that is the purpose of the provision. However, the explanatory memorandum is probably too generous in that regard because many people might believe that interest or dividends arising from such investments would be exempt. I fear that the memorandum might give rise to misconstructions in that regard.
The law is being changed to align the tribunal awards with other awards of the same nature and also with practice and precedent. It would be a bad legal adviser who would depend on their interpretation of the small print in the section.
I am only making the point that people might misunderstand the provision.
Is it normal to exempt income from compensation awards in this way? Were awards from the Criminal Injuries Compensation Tribunal or the Stardust Tribunal distributed tax-free? Is it assumed that such awards are tax-free?
I am informed that this was done for awards to HIV/haemophiliacs. I am not sure if it pertained to victims of the Stardust tragedy.
It raises the implication that if it is not done, such awards are taxable.
I am still somewhat confused. Is the interest accrued from lump sums received from other tribunals and the national lottery taxable? The media recently reported that a person who won £2 million to £3 million on the national lottery was still claiming social welfare payments. Is the Minister stating that interest payments in some cases are not taxable?
The general principle is that a person receives a lump sum — lottery prize or court award — which is free of tax. Subsequently such moneys enter the straight tax system. If a person invests their lottery award, the flow of income from such investments is subject to tax in the normal way. This is also the case if someone receives a lump sum award from the courts. There are specific exclusions which arise as a result of the famous Dunne case where the person in question was permanently incapacitated and had no other source of income.
How can a person who won £3 million on the lottery continue to claim social welfare payments? He did not spend his award in one week.
If he was unemployed he was entitled to claim unemployment benefit. However, he would incur a tax liability. His unemployment benefit payment would be combined with his income from investments and he would pay tax on the total figure. The unemployment benefit would be less than his income tax threshold and would be added to it. If he was receiving unemployment assistance, he was defrauding the system.
It is a strange world when someone with £2 million to £3 million cannot afford to employ themselves.
It is.