What is the effect of section 62?
SECTION 62.
Question proposed: " That section 62 stand part of the Bill."
It reflects existing law and is essentially an anti-avoidance measure. It is directed at two possible abuses. The first of these would be the diversion by means of artificial pricing arrangements of profits between associated persons where the purchaser of the goods is a company entitled to claim export tax relief. The second possible abuse is the transfer of an exporting trade or part of such a trade by a company, whose period of relief is running out, to another company in order to secure a second period of relief in respect of the trade.
In effect, if a manufacturing company's period of export relief is running out and if it genuinely sells the property and is taken over by another company, it does not start again afresh for the period of export relief?
If there was an acquisition in that case by another company, whatever the other company, too, would have, would of course apply to the profits that it might generate.
But what period would be left for it?
The genuine sale—let us say that it is the one that Deputy Fitzpatrick has in mind there—would operate in this way; that company A is purchased by company B, and company B would have the period of unexpired relief and that would apply to all its export profits during that period even though the early one would be coming to the termination of its activities. But what we are dealing with in this section is the situation as between associated persons or companies: the arrangement whereby a second entity is fabricated in order to generate an extension of the rate of relief.
But we are not discussing in this particular section that it is a genuine transaction.
The genuine transaction between strangers is not going to be affected by this. This is a transaction as between associated persons.
Do the Revenue Commissioners treat companies differently from the way they treat partnerships?
The export sales relief is only available to companies. It is not available to individuals or partnerships.
In section 62, subsection (2) you talk about the seller having control over the buyer, the seller being a company or partnership.
I think you could have two companies involved.
Yes, it would also operate to prevent partners syphoning their profits into the company which they could do otherwise.
Therefore, it applies to partnerships.
No, the relief does not apply to partners.
It concerns companies which might resort to methods of tax avoidance.
A partnership could sell its asset to a company at an artificially low price which would mean that the company would then be able to generate correspondingly more generous profits, which in turn could enjoy export relief. That is the kind of device or transaction we want to prevent.
What would be the advantage for a partnership in selling a business to a company at an artificially low price?
Strangers would not do it but if a company sold their own property it would obviously have advantage for them to transfer the partnership to the company which in turn would generate the profits and those profits would be free of tax.
If it was at an artificially low price, it would have no significance.
In fact, it would have the opposite effect.
The partners would be shifting profits from themselves in that arrangement. If the profits remained with themselves they would become fully liable to tax and may have to pay it at the higher rates. By shifting the profits into a company with which they are connected they could avoid paying tax because they would get export relief.
Subsection (3) of section 62 reads:
Where a company (hereafter in this subsection referred to as the succeeding company) succeeds to a trade or a part of trade . . .
Has the word " trade " there a certain meaning outside, say, business?
We had this on an earlier section and, I suppose, in many Finance Bills, too, as to what trade is. It is another of these words which calls for a certain amount of interpretation or judgment of the facts of each individual case. Trade is defined as carrying on an activity in the nature of trade on an organised basis. We were always taught at school it was a very bad thing to define a word by using the word in the definition, but as far as tax law is concerned, that does not operate.
When we were discussing this earlier we got information to the effect that trading includes business as well.
You could have a business which is not a trade. The Income Tax Act of 1967, section 1 says:
"‘trade includes every trade, manufacture, adventure or concern in the nature of trade".
Question put and agreed to.