Special Committee Corporation Tax Bill, 1975 debate -
Wednesday, 25 Feb 1976

SECTION 95.

Mr. Haughey

I move amendment No. 29a:

In page 89, subsection 1 (a), line 6 to delete " 50 " and substitute " 35 ".

This is in relation to the defining of close companies. I will just deal very briefly with the background to my amendment. The Bill now provides that in calculating the percentage of voting power held by the public the following are excluded: any director of a company, any company under the control of one or more of the directors, any associated company, any funds, such as pension funds, for the benefit of employees or the directors of the company itself or any associated company. And, of course, a quoted company where 50 per cent of the voting power is held by the public. Where five or fewer persons own more than 50 per cent of the voting power in the company none of these persons will be allowed as members of the public.

I am suggesting that 50 per cent is too high and that this would, in fact, bring many Irish public companies within the close company legislation. The general approach of the Bill is that at least 50 per cent of the voting power has to be held by the public and if we apply the very stringent tests which the legislation sets out, then a very, very large number of Irish public companies could be brought within these close company provisions. I am suggesting that the percentage should be 35 per cent and my reason for fixing 35 per cent is because that is the level which is accepted by the Federation of Stock Exchanges for quotation purposes. Fifty per cent is much too high.

Mr. R. Ryan

Perhaps I should explain why we contemplated the 50 per cent threshold. It will be recalled that it is the one set out in the 1974 White Paper. The purpose of setting a threshold at 50 per cent was to ensure that in order to be excluded from the provisions relating to close companies, a reasonable proportion of the voting shares of a company were dispersed among the public. This would, to a large extent, ensure that control of the company would not be in the hands of a small group of shareholders who could manage the company's affairs primarily in their own interests. A limit of 50 per cent might lead to more shares being put on the market by companies anxious to avoid close company status. This should result in the creation of a larger and, one would expect, more active market in shares in Irish companies. The 50 per cent threshold would also be conducive to greater public trust in Irish companies, particularly as it appears that requirements for disclosure are not as stringent as in some other countries—as, for example, in Britain. It is suggested also that scrutiny in the financial press is not an adequate substitute for substantial public participation in Irish companies.

In the case of trading companies the surcharge is restricted to investment and estate income and in relation to these companies, it is likely to be more liberal in its operation than the much more complex apportionment provisions which appear to be the only alternative to the surcharge if a reasonable tax balance as between individuals on the one hand and companies and their shareholders on the other hand is to be achieved.

Mr. Haughey

To some extent what is happening here is we are continuing the old philosophy of not permitting the company to be used to aid individual taxpayers to avoid the tax by leaving the profits in the company. My suggestion is that if 35 per cent is acceptable by the Stock Exchange in the case of public companies as being the level at which it is no longer possible to manipulate the company for private reasons and 35 per cent is a genuine public company, then that should also be the test which is incorporated in this Bill. The 50 per cent is too high.

Mr. P. Belton

It would depend on the size of the company. Thirty five per cent of £20 million is a lot of money.

Mr. Haughey

I think something could be done. If the share capital is less than a certain figure then it could be 50 per cent.

Mr. E. Dockrell

Sliding scales?

Mr. R. Ryan

I think I would rather that it be 35 per cent than have a sliding scale. I like to be on firm ground in taxation matters.

Mr. Haughey

It is the business of the Stock Exchange and they accept 35 per cent.

Mr. R. Ryan

There is a lot to be said for both attitudes. I do not think we are in strong disagreement here. I would be disposed to accept the amendment subject to reserving for myself and my successors the right to review it and if it is considered it is not the correct threshold that the necessary amending legislation would be introduced.

Mr. Haughey

I am grateful to the Minister for that.

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 30:

In page 89, in subsection (3), line 24, to delete " expectations " and to substitute " exceptions ".

It is correcting a typographical error.

Amendment agreed to.

Section, as amended, agreed to.