Select Committee on Finance and General Affairs debate -
Wednesday, 23 Apr 1997

SECTION 40.

Mr. McCreevy

I move amendment No. 67:

In page 50, subsection (1) (a), line 31, after "harbours" to insert "and for the avoidance of doubt the company which owns the port of Greenore shall be such a company".

I strongly commend this amendment to the Minister. I referred to this matter briefly when we discussed the establishment of the new port authorities. As the Minister is aware, Greenore Port is the only privately owned port in the State. Its owners discovered some years ago that they were at a disadvantage in terms of corporation tax. This Bill changes the rules of the game but they will still be at a disadvantage. They have a good case for a rebate of corporation tax paid over a long number of years. I am sure, however, if they pursue this route, they will be resisted. It is my view that they would win their case. They have asked me to table this amendment to ensure they are treated in the same way as the State owned commercial ports. This is a reasonable request. They should not be penalised in this way.

Mr. Quinn

There have been confidential discussions——

Mr. McCreevy

I am aware of that.

Mr. Quinn

——and I gather a solution has been found. They will be treated from now on in exactly the same was as the eight port companies which are being given commercial status. It is up to them to decide if they should seek a tax rebate.

Amendment, by leave, withdrawn.

Mr. Quinn

I move amendment No. 68:

In page 50, subsection (1) (a), lines 36 to 38, to delete "by harbour authorities specified in paragraph (i), and companies specified in paragraph (iii)" and substitute the following:

"by—

(i) harbour authorities specified in paragraph (i), and

(ii) companies specified in paragraph (ii), of the definition of ‘relevant body',".

Mr. M. McDowell

Although the Government is establishing a heap of semi-State companies to run our ports, they should be open to private investment. I welcome the tax regime being put in place.

Amendment agreed to.

Section 40, as amended, agreed to.

Mr. Quinn

I move amendment No. 69:

In page 51, before section 41, to insert the following new section:

"41.—Notwithstanding any provision of the Corporation Tax Acts, income arising in any accounting period ending after the 30th day of April, 1997, to the body designated by the Minster for Enterprise and Employment under section 3 of the Irish Takeover Panel Act, 1997, shall be exempt from corporation tax.".

Amendment agreed to.

Sections 42 and 43 agreed to.

Chairman

We come to amendment No. 70 in the name of Deputy McCreevy. Amendment No. 77 is related.

NEW SECTIONS.

Mr. McCreevy

I move amendment No. 70:

In page 53, before section 44, to insert the following new section:

"44.—Section 127 of the Corporation Tax Act, 1976, is hereby amended by the addition after subsection (3) of the following:

‘(4) In the case of a "relevant reconstruction" the provisions of this section shall apply notwithstanding that as a result of the arrangement the identity of the shareholdings as between the first and second companies has not been preserved.

(5) In this section—

"relevant reconstruction" means a reconstruction of a "family company" carried out for bona fide commercial reasons.

"family company" means a company the voting rights in which are as to not less than 75 per cent. exercisable by "members of a family".

"members of a family" means individuals who are relatives or the husband or wife of the individual, or a relative of the individual's husband or wife, and "relative" means brother, sister, ancestor or lineal descendant.'.".

I submitted a raft of resolutions on company restructuring last year in order to get over problems relating to certain family-owned companies. The Department of Finance and the Revenue Commissioners are aware of the company in which I declared my interest at the time, in the sense that it made representations to me — I have no professional association with the company. I was given a commitment last year that these matters would be considered by the Department of Finance and the Revenue Commissioners and I resubmitted them this year.

Mr. Quinn

I understand that negotiations are ongoing with the relevant company. The Deputy seeks in these amendments to achieve a situation whereby family companies can divide into a number of companies, with no adverse tax consequences. Tax heads for which he has put down amendments are corporation tax and capital gains tax, but there are also implications for income tax, stamp duty and companies' capital duty.

I understand where Deputy McCreevy is coming from when he asks that it should be possible for a company to be restructured without the State seeking to impose charges to tax. I understand that the particular case underlying Deputy McCreevy's amendment involves a family company which conducts two separate businesses and that it is proposed to form two separate companies, each to take over one of the businesses. If the shareholders in the original company had the same level of shareholding in each of the new companies as they had in the original company, the relief being sought would be available under existing legislation. However, I understand the proposed restructuring does not retain the same proportions of shareholding by the original shareholders. Irish legislation in this regard is similar to that which applies in the UK. However, I am informed that in the case of a bona fide division of a family company, the identity of shareholding in the new and old company is not insisted upon in that jurisdiction. I have asked my officials and the Revenue Commissioners to examine the position here. I understand the Revenue Commissioners have been in contact with the tax adviser in the particular case with a view to examining whether a solution is possible under existing law.

Mr. McCreevy

I will resubmit it on Report Stage.

Amendment, by leave, withdrawn.

Chairman

As it is now 11.30 I am required to put the following question in accordance with an Order of the Dáil of 16 April: "That the amendments set down by the Minister for Finance to Chapters II and III of Part I of the Bill and not disposed of are hereby made to the Bill, and in respect of each of the sections undisposed of in the said Chapters that the section or, as appropriate, the section as amended, is hereby agreed to."

Question put and agreed to.

Sitting suspended at 11.35 a.m. and resumed at 11.40 a.m.

NEW SECTION.

Mr. McCreevy

I move amendment No. 74:

In page 55, before section 47, but in Chapter IV, to insert the following new section:

"47.—Section 4 of the Capital Gains Tax Act, 1978, is hereby re-enacted with effect from 1st January 1997.".

This amendment was suggested to me by Deputy Séamus Hughes. It arises from the recommendations of the task force report. The reasons have been outlined to the Minister on a number of occasions and I have no doubt have been considered in the Department of Finance. I would like to hear the Minster's views.

Mr. Quinn

I thank the Deputy for his brief presentation. What the Deputy proposes in both amendments is to introduce capital gains tax relief, known as tapering relief. This was a relief whereby the rate at which capital gains tax was charged for certain disposables was reduced by reference to the length of time the taxpayer owned the asset. In this way short term disposables were taxed at the higher rate of capital gains tax but as assets were held for longer periods the rate of tax declined. If the assets were held for 20 years or more a zero rate of tax was applied. This relief was abolished in 1982 as part of a package of measures which were designed to reform the system of capital taxation.

There were three strong arguments in favour of its abolition and they remain valid. First, there is the availability of tapering relief along the lines of indexation relief. That ensures that the effective rate of capital gains tax for many taxpayers is extremely low. Second, it was established that Ireland was only one of a few countries to provide both indexation and tapering relief. Most countries have either one or the other and it was considered that to have both would be excessively generous. Third, to introduce tapering relief now would cost about £35 million in a full year, which is a prohibitive cost.

In respect of amendment No. 82, what the Deputy proposes is the introduction of a form of tapering relief for the proceeds of disposable shares in small Irish companies. I am opposed to this amendment for three reasons. First, these disposals are already the subject of a substantial refund under section 66 of the 1994 Finance Act whereby such disposals are subject to a reduced rate of capital gains tax at 26 per cent as opposed to the standard rate of 40 per cent. Second, when the reduced rate was introduced in 1994, it was hoped it would have the effect of encouraging and accelerating the disposal of shares in small companies. What the Deputy proposes would have the opposite effect, in that it would encourage individuals to retain shares for as long as possible so as to take the advantage of lowering rates of capital gains tax. Finally, the relief proposed would cost the Exchequer £3 million in a full year. I do not propose to accept either of the amendments.

Mr. McCreevy

I will resubmit the amendments on Report Stage in order to give Deputy Hughes the opportunity to speak on them. He has much documentation on the matter and we should give him an opportunity to speak on Report Stage. He might be able to get the Minister to a move in this direction.

Amendment, by leave, withdrawn.