Special Committee Corporation Tax Bill, 1975 debate -
Tuesday, 17 Feb 1976

SECTION 6.

Question proposed: " That section 6 stand part of the Bill."

Minister for Finance (Mr. R. Ryan)

I preface my remarks by welcoming back Deputy Colley. I hope he has overcome his indisposition. As I said last week, I meant no discourtesy in moving in his absence, because of urgency to get this Bill through.

Section 6 deals with the general scheme of the corporation tax. It provides that taxes shall apply to the profits, that is, the income and chargeable gains wherever arising. The tax will be assessed on a company for each accounting period on the profits arising in that period. The rate of corporation tax will be fixed for each financial year and where an accounting period does not coincide with the financial year, the profits of the accounting period will be apportioned on a time basis between the financial years concerned for the purpose of arriving at the amounts of corporation tax to be charged for the whole accounting period. The tax will be payable in two equal instalments on dates which broadly correspond to present dates of payments of corporation profit tax and income tax. The tax will be under the care and management of the Revenue Commissioners. I could provide detailed comment on the different subsections now, but perhaps I should allow time for any queries.

Mr. Haughey

Would the Minister mind repeating the comment about the time?

Mr. R. Ryan

The tax will be payable in two equal instalments.

Mr. Haughey

No, before that.

Mr. R. Ryan

The rate of corporation tax will be fixed for each financial year. Where an accounting period does not coincide with the financial year, the profits of the accounting period will be apportioned on a time basis between the financial years concerned, for the purpose of arriving at the amount of corporation tax to be charged for the whole accounting period. If there is no change in the rates of corporation tax, then no difficulty arises. If there were a change, and, say, that nine months fell in the earlier year, the profits would be apportioned for nine months and then as to three months. Therefore, you would have three months at one rate and nine months at another rate. Whether this would be an increase or a decrease——

Mr. Haughey

Do you anticipate that the rate will go down?

Mr. R. Ryan

I hope so. It is the ambition of all Finance Ministers.

Chairman

The Minister gave some examples in relation to certain sub-sections in the material he circulated. Did you get them, Deputy Colley?

Mr. Colley

No, I did not get them. I should like to thank the Minister for his kind remarks. I understand the urgency of this matter and why he needed to proceed.

Mr. P. Belton

I cannot hear a word.

Chairman

At the last session, the rapid fire of remarks here caused some difficulty to the recording apparatus in this room and to the official reporters. Please bear that in mind.

Mr. O'Malley

Are there any loudspeakers here?

Chairman

There is only a recording. There was some difficulty reporting the last meeting.

Mr. O'Malley

I presume the microphones are only recorders; is there anything to amplify the volume?

Chairman

No.

Mr. O'Malley

It is a very unsuitable room, especially the way the tables are set out. I cannot hear Deputy Colley either.

Chairman

Possibly Deputy Colley will bear that in mind.

Mr. Colley

I will try to bear that in mind. Could I ask the Minister whether the effect of subsection (4) (b) is that, for some existing companies, that is, companies whose year ends on 31st March, the first and the second instalments of tax will be payable after nine months? If that is so, does he not think this is really too sudden to be practical? Would it not be desirable to consider amending the proviso on line 23, page 12, to provide that the second instalment would not be payable until six months after the first instalment, or two months after the date of assessment, if that is later?

Mr. R. Ryan

This proposal in the Bill conforms with the existing law, and as far as practicable, we have made as little change as possible. There are some changes, some which operate to relieve the taxpayers. Subsection (4) (b) ensures that the second instalment of tax will not become due for payment on a date earlier than nine months from the end of the accounting period, that is, earlier than the date on which the first instalment falls due. For example, if the first accounting period coming within the charge of corporation tax, was 12 months ending on a date from 1st April, 1976, to 5th April, 1976, the second instalment of tax would not fall due until 1st January, 1977, that is, on a date less than nine months from the end of the accounting period and earlier than the date on which the first instalment falls due. The first part of the proviso is to ensure that this will not happen. The latter part of the proviso ensures that the second instalment of tax will never become payable earlier than two months from the making of the assessment. This is to cater for cases where assessments are made at a later date than the general rule.

Mr. Colley

Would the Minister accept that, as drafted, the effect could certainly be that in the case of new companies in competition with existing companies, that the new companies could be at an advantage under these provisions or, that existing companies could be at a disadvantage, depending on their accounting year? Would he also accept that some approach on the lines I have suggested, in regard to the proviso on page 12, might help to remove this anomaly between a new and existing company and, that the implications for the Exchequer are unlikely to be serious, if one has regard, particularly at present, to the low rate of profit and to the amount of stock and similar reliefs that are already being given?

Mr. R. Ryan

A low rate of profit leads to a smaller amount of tax. I am not saying that is the reason for encouraging a position in which a small profit is made, but nonetheless it has that effect. One could achieve equality by putting the new companies in the same position as old companies, if equality is the perfection which it is desired to achieve. At a time when we are shortening the period under which individuals may pay tax, it would not be appropriate to extend the period during which corporations could pay tax. We are broadly maintaining the position and I would not think it would be appropriate to make the change now suggested.

Mr. Colley

I take it, by implication, the Minister is agreeing there could be an advantage to a new company as against an existing company under these provisions?

Mr. R. Ryan

Yes, that is true.

Mr. P. Belton

Why?

Mr. R. Ryan

The new company may need time to get their affairs into order. I do not think it is unreasonable that they should have extra time. There is no case why older companies should get an advantage which they did not previously have.

Mr. Haughey

On subsection (4) (a), the first instalment has to be paid within nine months from the end of the accounting period or, if it is later, within two months from the making of the assessment. I presume that is provided for in a case where there is some inordinate delay. When it comes to the second instalment, it must be paid within 15 months from the end of the accounting period or, if it is later, within two months from the making of the assessment.

Again, in subsection (4) (a) (ii) we are concerned with a late assessment which has been made. Would that not give rise to a situation where both the first and second instalments would have to be paid very rapidly within the time of making the assessment? It would have to be 15 months after the period of accounting, but it would still come almost immediately after the making of an assessment. Is there not a case for making the second one three or four months?

Mr. R. Ryan

The reason for the delay would depend on whether relief should be given, but if the delay was attributable to the taxpayer, obviously there is no case for giving an extension. The position under the income tax code is that the tax is payable immediately after assessment. Corporations are being more favourably treated by being given a time lag between assessment and the time of payment. I do not think we would be justified in extending the time any further.

Major de Valera

What happens in the case of a company who acquire a new source of income in a period?

Mr. Haughey

They are very lucky.

Major de Valera

Yes, but I mean from the tax point of view.

Mr. R. Ryan

Each accounting period is treated as a separate unit, and that would become the measure of its profit in that accounting period. The fact that the profit is only earned for a proportion of that accounting period would not affect the quantity of profits calculated at the end of the period. It is not a PAYE system; I am not suggesting the introduction of that.

Major de Valera

It is a question of the period within which you have to account.

Mr. R. Ryan

Let us take a specific example. Let us take a company with a 12-months' accounting period, nine of which are in the year 1977 and three in the year 1978, and within three months of the end of 1977 some new source of profit arises. Is that the point?

Major de Valera

Yes.

Mr. R. Ryan

That profit would come into the accounting period of a full 12 months. If there is a change in the rate of tax, you would divide the profit arising out of that source of income and spread it over the 12 months, where you take nine months at one rate and three months at another rate. If we got into a way of taxing companies' profits on a daily rate on which such profit was made, it would become an extremely complex code and we could not incorporate it in this Bill.

Mr. P. Belton

There would be no companies left.

Mr. R. Ryan

The Deputy is right.

Mr. O'Malley

If that point is completed, may I ask a question arising out of subsection (1)? The charge to corporation tax is on a company's profits, which are defined in section 1 (5) (c) as meaning income and chargeable gains as defined in the Capital Gains Tax Act, 1975. The rate of corporation tax is 50 per cent or thereabouts. The rate of capital gains tax is 26 per cent. Why is a company put at such a disadvantage?

Mr. R. Ryan

It is not. We have a formula whereby the amount of tax would be 26 per cent and not 50 per cent on a chargeable gain. Section 13 so provides.

Mr. O'Malley

Why not charge a company capital gains tax?

Mr. R. Ryan

We take one half of 52 per cent to give us 26 per cent on chargeable gains.

Mr. O'Malley

Why do it in that way? Why not charge a company capital gains tax under the Capital Gains Tax Act?

Mr. R. Ryan

Because the great virtue of the new corporation tax is to have but one tax applying to companies. We are getting rid of income tax and corporation profits tax. That was the recommendation of two White Papers and studies over the last two years. We do not want to introduce a new tax on top of the corporation tax when, by the simple device provided in section 13, we can produce the same net position where the corporation tax on chargeable gains will be at 26 per cent.

Mr. O'Malley

The total tax payable, therefore, is not greater than on an individual?

Major de Valera

On an individual company?

Mr. R. Ryan

No. The capital gains tax would be 26 per cent whether paid by a corporation or an individual. In the material I circulated, an example on section 13 showing how it operates.

Question put and agreed to.