Special Committee Corporation Tax Bill, 1975 debate -
Wednesday, 18 Feb 1976

SECTION 14.

Minister for Finance (Mr. R. Ryan)

I move amendment No. 4:

In page 20, subsection (7), line 20, after " is a time " to insert the following:

" immediately preceding the accounting period first mentioned in subsection (6) ".

This is a drafting amendment designed to prevent any claim that might possibly be made that the allowances should be carried back, at the company's choice, to an accounting period ending in any earlier period, even years before, equal in length to the accounting period for which the allowances arose. This is in conformity with existing taxation principles.

Chairman

In other words, there is nothing new on this matter?

Mr. R. Ryan

No.

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 4a:

In page 20, subsection (8), line 29, to delete " one year " and to substitute " two years ".

This is in response to representations which were made by the Consultative Committee of Accountancy Bodies in Ireland to the effect that the time limit in the subsection, namely, one year, is too short so we are providing two years.

Amendment agreed to.

Question proposed: " That section 14, as amended, stand part of the Bill."

Mr. R. Ryan

Section 14 provides that capital allowances, including accelerated capital allowances and balancing charges computed in accordance with the income tax provisions as these are applied to corporation tax by section 21 and the First Schedule, are to be deducted from or added to the income to which they relate. Capital allowances, to the extent that they exceed the income, other than the trading income to which they relate, may be carried forward and deducted from income of the same class for subsequent accounting periods. Alternatively, they can be set off against other profits of the same accounting period, or carried back and set off against profits of any description of the immediately preceding accounting period or periods of the same length. In the case of a trade, any excess of capital allowances over trading income would create a loss which would be available for relief under section 16 or section 18. There is provision to enable a company, for example a company entitled to export sales relief, to disclaim accelerated capital allowances but not the normal annual allowances. This provision, in effect, preserves under corporation tax the income tax position of the company entitled to either of the reliefs mentioned might decide not to claim the accelerated allowances so as to maximise the relief in terms of tax over the life of the asset.

Major de Valera

At the moment there is a pretty workable scheme in operation as far as income tax and corporation tax are concerned. I would like to ask the question, are we substantially preserving this?

Mr. R. Ryan

Yes.

Major de Valera

One realises that rates and things like that change but there is the matter of the principles of application of the reliefs and the necessary power of adjustment the inspectors must have. The Minister remarked last evening that nearly every company pose their own problems. Where capital allowances are concerned every problem has its own individual case. Therefore, they need an individual judgment in a way that may not be as automatic as in other areas. Yesterday we were talking about income tax law and procedure. Are we maintaining the law and procedure that in essence has heretofore ruled? Is this essentially consolidation? If it is, I do not think we need delay very much further on the subject.

Mr. R. Ryan

It is essentially consolidation but, as Deputy de Valera anticipates, it is a new packaging arrangement so there has to be some shifting around of the details.

Major de Valera

I am not so concerned about that if there is no rigidity brought in. If the changes leave room for manoeuvre for the Revenue Commissioners to be able to adjust to reality here and if we could be assured of that we would not delay on the section.

Mr. R. Ryan

I can give that assurance.

Chairman

I notice that in section 14 (2) you refer to taxing a trade. There is some kind of distinction made between the words "trade" and "business". There are certain activities that would not be described as a trade but are commercial in their nature. Is there any reason for not inserting the word " business " there?

Mr. R. Ryan

We are dealing with allowances which arise in relation to a trade and which would not arise in the general course of a business other than a trade which can be conducted without the kind of expenses that occur in the operation of a trade. Trade has a narrower meaning than business. The allowances are those given in relation to the trading activities as distinct from activities which would not amount to a trade in the technical sense.

Chairman

There are certain trades or businesses that may be more of a professional type where special services are provided. They could be specialised firms. It is a matter which might give rise to argument and it would be as well if it could be cleared at this stage. Is there any particular reason for excluding the word "business"? I know we have had this in a completely different line of country, that is, in reference to the landlord and tenant code where the words " trade or business " are used. The writing off of a lease or such expenses would come in for a business but they might be excluded if just the word " trade " was used.

Mr. R. Ryan

May I refer you to page 165 where there is reference made to charges being made in taxing a trade?

A reference to allowances or charges being made in taxing a trade is a reference to their being made in computing the trading income for corporation tax or in charging the profits or gains of the trade to income tax.

Chairman

The word " trade " has a kind of historical meaning in legal phraseology. There is a distinction made between a trade and a business but if business is included in the word " trade ", this is what worries me.

Mr. R. Ryan

It would be wrong to assume that every business is a trade. It could happen that trade would be a business but not vice versa.

Chairman

Would banking be described as a trade?

Mr. R. Ryan

Yes.

Chairman

Business efficiency experts who might be providing other services, would be described as a trade?

Mr. R. Ryan

Yes. Stockbroking——

Mr. P. Belton

What is "business"?

Mr. R. Ryan

Such as holding investments, the letting of property, investment in property.

Mr. Crowley

A business is not productive in the sense that it is non-active?

Mr. R. Ryan

It is less active but it could be productive. I do not think this Committee have a legal explanation for it but it is something that could be conducted, for instance, with the aid of a telephone.

Chairman

What I am concerned about is there could be a consultancy type service where there might be what I would call physical input other than just manpower or know-how. That could be a trade. The Revenue Commissioners would take that view on that type of situation.

Mr. Crowley

Does the Minister consider that the difference between the definition of "business" and "trade" is important?

Mr. R. Ryan

It is very important because of the different treatments which apply. There are certain allowances given to a trade which would not arise normally in running a business other than a trade. If you did not treat them differently there would be abuses.

Chairman

I can see there could be abuse. From the Minister's reply I can see it has a wider connotation than the strictly conventional.

Question put and agreed to.