The only point I want to raise on this section is the reference in the Minister's Budget Statement to the combined maximum rate of income tax and corporation profits tax. That statement has been repeated in a number of periodicals since the Budget. I cannot see how the calculation there is arrived at. The Minister stated that the maximum now will be 8/4 in the £ whereas in fact it comes to 9/- in the £ in a number of cases.
Finance Bill, 1959—Committee Stage (Resumed).
Question proposed: "That Section 20 stand part of the Bill."
That could not be. It is 8/4d.
Surely this exemption deals with building societies.
There are three classes: the utility societies which were always there; the Agricultural Credit Corporation was added later; and building societies.
It does not deal with the general level of C.P.T. plus income tax.
Surely I am entitled to inquire how this figure of 8/4 is arrived at.
Is it not 7/18ths of 20/- plus 2/-?
The Minister in his statement said:—"The combined maximum rate of income tax and corporation profits tax payable by Irish companies will now be 8/4 in the £."
In regard to corporation profits tax, 2/- in the £ is taken off, and then that is allowed, as the Deputy is aware, in the calculation of income tax. It is, therefore, only the 18/- which is charged for income tax so that actually the rate is 6/3 and not 7/-, and 2/- added to 6/3 gives 8/3.
The 2/- comes off C.P.T. first, and then 7/- tax.
He is charged on the 18/-.
But the Minister is charging 7/18ths.
He actually pays 6/3 income tax, not 7/-.
Is 6/3 in the £ the same as 7/18ths of £1?
It may be.
7/18ths of £1 is clearly more than 6/8.
I reversed it. The Minister is correct.
Question put and agreed to.
SECTION 21.
Question proposed: "That Section 21 stand part of the Bill."
Can the Minister say what exactly is the effect of this section? As I understand it, at the moment ordinary relief in respect of income tax is given where a person pays an annual premium. What is the actual effect here of taking account of portion of the sum as capital?
It is very hard to say what the actual effect will be because it will vary a great deal. For instance, if a young man like the Deputy were to put down £5,000 now there would be a very big item of interest in that. It would, in fact, be more important than the capital. On the other hand, if a man of my age——
The Minister should not be so derogatory about himself.
——were to put down the same amount, it would be more capital than interest. It really depends on circumstances and it will be calculated actuarially.
That means nobody will understand it.
Is the annual sum paid in respect of an insurance policy altered by this section? At the moment income tax is allowed on it.
The payment is not affected by this.
I do not know if this is technically the correct place to raise this matter, but I think it will serve as a convenient peg upon which to hang it. We had some discussion last year here about retirement annuity relief. I do not know if the Minister has had any complaints in relation to that, but I am informed that it is impossible to get terms from either of the Irish insurance companies which are more advantageous in any way for a group as compared with an individual applicant. The practice in Britain has always been that group scheme applicants have more favourable terms than individual applicants. If that is possible in Britain, I do not see why it should not be possible here. Presumably group schemes are easier of collection from a premium point of view and easier, too, from many other points of view.
There would not appear to be any difference in principles governing insurance here and principles governing insurance in Britain. Yet, the fact remains that Irish companies will not give any group discount. If that attitude continues many bodies will have to drop any idea of group schemes. I think the Minister will agree that would be highly undesirable. The solicitors' profession, for example, have been trying for some time to get facilities for a group scheme. I understand other professions have been endeavouring to do likewise. In all cases they have found that no group scheme quotations will be given. That is an entirely undesirable situation and one which must be remedied. If it is not remedied, I am afraid I shall have to ask the Minister to look at it in another way. We are all anxious that Irish insurance companies would do as much business as possible, but they must give the facilities required by the general public.
I want to raise, too, subsection (8) (b), which is an excluding subsection. It states:—
This section shall not apply— to any annuity where the whole or part of the consideration for the grant of the annuity consisted of sums satisfying the conditions for relief from tax under section 41 of the Finance Act, 1958, or section 32 of the Income Tax Act, 1918.
The reliefs given in Section 32 of the Income Tax Act, 1918, are roughly life insurance reliefs. I can understand absolutely the reason for exclusions where the whole of the consideration consists of payments for which relief is being granted in another way, but I cannot understand the reason why "part of the consideration" is inserted. If an annuity arises by virtue of which, say, half the consideration for the annuity has qualified for life insurance relief and the other half has not, would it not be proper to say that only half the annuity will qualify for relief under this Section? I do not understand why, if there is any life insurance relief included at all, it automatically excludes the entire annuity.
With regard to the first part of the question raised by the Deputy, as Minister for Finance I have no knowledge but, prior to my term as Minister for Finance, I can assure the Deputy there was very keen competition for these group schemes. I know that Irish companies tried to make as big a reduction as they could to get them. I am quite sure they are carrying on business in that way. I shall make inquiries, however, as a result of the Deputy's question.
I can assure the Minister that on the 3rd April of this year what I have stated was the position.
Yes.
I shall let the Minister see this letter, if he likes.
I shall be very glad to see it. With regard to the words, "whole or part", this applies, as the Deputy pointed out, to the retirement annuity for the self-employed, as was provided in last year's Act. The difficulty here, I believe, is not so much that it is partly one and partly another but one year as one and one year as another—a few years as self-employed and then changing over. It would not be possible, in that case, to get credits for payments made as the self-employed part of the business. I think that is the point that arises there.
Could the Minister tell me what was Section 41 of the Finance Act, 1958?
It deals with the retirement allowance for the self-employed.
Yes.
Question put and agreed to.
Section 22 agreed to.
SECTION 23.
Question proposed: "That Section 23 stand part of the Bill".
In regard to sub-section (2), would the Minister explain what is the point of this definition? For the life of me, I cannot see it.
The point there is that the trade might not, in fact, have been started and he might be doing preliminary work.
Building a factory?
Probably, and this sub-section brings that into the trade.
Is that, then, rather the same analogy as I was trying to bring in in relation to minerals later on, where work is done before the person has actually started the trade?
It is the same idea.
Good. I will remember that one.
It might not always apply.
Question put and agreed to.
SECTION 24.
Question proposed: "That Section 24 stand part of the Bill."
I want to get this point clear in my mind. It seems obvious that the one-fiftieth—two per cent—is a fixed amount each year. In other words, it is not two per cent. on a diminishing balance. Is that clear?
It is a straight line two per cent. is it not?
It would be two per cent if it remained in one ownership and was always working.
The next point is that the one-fiftieth will be of the total expenditure and not of the total expenditure less the industrial building allowance or, if the sum spent on the building is £1,000, one-fiftieth of £1,000 less the initial industrial building allowance?
It is the gross expenditure.
So that a man could then get 100 per cent of the expenditure?
No. He gets his ten per cent starting off; the one-fiftieth reduction, then, does not go for fifty years; it might be only forty-five years.
Where is that? I cannot see it. I thought that was the idea.
Is it not sub-section (4) (b)?
Yes, sub-section (4)(b). When all the original cost is paid, it stops.
Sub-section (4)(b)?
Yes.
He gets a shorter term of years by what he has got as an initial allowance. Is that not it?
Yes.
If the initial allowance was the equivalent of ten per cent, then he gets only two per cent for 45, instead of 50, years. Is that right?
That is right.
That was my understanding of it.
I still do not understand that. It must be my obtuseness.
We would not dream of saying that. We would say that both the Minister and I are inadequately able to explain it.
Perhaps I can explain. Take the simple sum of £10,000. A man opens a factory. He gets £1,000 off initially and then one-fiftieth of the £10,000 every year from that on, that is, £200 but, when he has been allowed the first £1,000 and the next £9,000 at £200 a year, it stops. In other words, it stops after 45 years. There is a difference if it changes ownership.
I understand that. That comes about by the operation of sub-section (4) (b)?
Yes.
Sub-section (4)(b) of Section 24?
Of this section, yes.
I shall take the Minister's word for it. I have one other point to make. It is possible that an industrial building allowance could have been given prior to the passing of this Act but the annual allowance may not start, I understand, until after the 15th April, 1959. Is it intended, therefore, that there could be a gap, in other words that a building which was built subsequent to the 30th September, 1956, getting an industrial building allowance, would not necessarily get an annual allowance until after the commencement of this Act?
No. They will not get the first annual allowance until the next financial year.
Therefore, in that case, do I take it that there could not be fifty annual allowances given in the case of that building?
No. It would be one-fiftieth, of course.
But there could not be fifty given. In other words they could miss out the first two years.
No.
Question put and agreed to.
SECTION 25.
Question proposed: "That Section 25 stand part of the Bill."
Line 30 on page 18 restricts this to buildings that started after the 15th April, 1959. That was Budget day. That is why that date was taken—it was the day on which the Financial Resolution was passed. I am not clear at all, I am afraid, as to what happens in respect of a building where there was a contract for the sale of that building before that date but the contract was not completed until after that, because it refers to a sale here—has been sold in the year of the assessment. I am interested in the case where the contract of sale was made before but the sale was not closed until afterwards. I have a suspicion it is a six-marker.
Section 66 (4), page 45, provides:
Any reference in this Part of this Act to the time of any sale shall be construed as a reference to the time of completion or the time when possession is given,...
I missed that, it answers me completely.
Question put and agreed to.
SECTION 26.
Question proposed: "That Section 26 stand part of the Bill."
Would the Minister mind explaining this section? I find it rather difficult to understand. If the Minister has a note in his brief, I should like him to read it to us. I do not want to badger him unduly on it.
First of all, subsection (2) takes the value of the building at the time the structure is first used. You take the ten per cent. initial allowance off and one-fiftieth after that. It is brought into account for the accounting year of the trader.
According to subsection (4), normally it is one-fiftieth but that can be varied under certain circumstances but only in very exceptional circumstances. There is a case covered there which might be rather unusual where ownership changes between the accounting year and the assessment year. If this proviso were not put in, I believe there would be no allowance for that particular year. That proviso is inserted to cover the point that the one-fiftieth would be allowed.
With regard to sub-section (3), does "the said time" mean the end of the basic period? Sub-section (3) reads as follows:—
If, by reason of the building or structure being at any time an industrial building or structure, an annual allowance is made for any year of assessment in respect of the expenditure, the amount of that allowance shall be written off as at the said time;....
Does "the said time" there mean the end of the basic period?
Yes, and it comes into the accounting year of the business. It is taken on the accounting year of the business.
That is the basic period?
Yes, that is right. It would be treated then in the next financial year as far as income tax is concerned.
Is it the point of sub-section (3) that you take an annual allowance as being written off, not at the end of the assessment year but at the end of the basic period?
Yes, that is right.
Question put and agreed to.
SECTION 27.
Question proposed: "That Section 27 stand part of the Bill".
Why is this "primarily" clause put in here? It seems to me that, later on, it goes on to say you can set these allowances off against anything. Why do you put in sub-section (5) that any allowance shall "primarily" be set off against certain income?
I do not know what "primarily" means there. I think it means in the following order. They will first be set against Schedule A. If Schedule A is not sufficient to cover the allowance that is due then you go on to the ordinary Schedule D.
But, later on in the Bill somewhere, as far as I know, it says that you can set off these allowances against any other income for the same year that you elect.
So you can. The Deputy is quite right there. He can have it carried forward, according to what is here, or put against even surtax or some other tax he may be paying.
Arising out of sub-section (3), presumably the subsection refers to the tax that would be assessed on rent that a man is getting out of premises because of an assessment on the rent issuing out of premises which are used industrially under the Finance Act, 1932? I do not quite understand what difference is intended there between subsection (3) and subsection (5) (b) but I feel there must be some difference between the two. They look to me, first of all, to be both the same thing. Is income not charged to tax in Clause 3 of Schedule D? Is that not the industrial rent in the 1932 Finance Act?
Subsections (2) to (4) deal with cases where the allowance is given against tax—either Schedule A or Schedule D, and so on. Subsection (5) deals with leased buildings where the balancing charge would be treated against the income from the leased buildings.
Is that correct? If so, I misunderstood the section. Perhaps the Minister would send me a little note about it between this and the Report Stage?
I am afraid I must leave it at that.
Question put and agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill."
With regard to sub-section (1), how do you define the contractor who actually builds the building? I am referring to the definition of "the relevant interest." The sub-section reads as follows:—
Subject to the provisions of this section, in this Chapter "the relevant interest" means, in relation to any expenditure incurred on the construction of a building or structure, the interest in that building or structure to which the person who incurred the expenditure was entitled when he incurred it.
Could that not apply equally well to the contractor who built the building?
I do not think the building contractor has any interest in a building.
It is not the contractor who incurs expenditure.
I do not think a building contractor has any interest in a building. It is the owner of the building he is putting up.
He has no legal interest?
No.
This pretends to define interest.
Question put and agreed to.
SECTION 29.
Question proposed: "That Section 29 stand part of the Bill."
Section 29 (1) deals with the case where a lessee remains in possession with the consent of the lessor, but there are cases where there is an application for a new lease pending under the Landlord and Tenant Act and where a person does not remain in possession with the consent of the lessor but remains in possession because of the statutory provisions or because of an order of the Court. I am not clear whether consent of the lessor covers the statutory proviso or covers the Court order.
Subsection (2) is intended to cover that. As long as the person remains in business he is entitled to get the allowance while the continuance of the lease is being decided.
Subsection (1) covers the position when his lease has expired and he remains in possession with the consent of the lessor pending a new lease being granted, or perhaps nobody bothers about the lease at all.
Subsection (2) covers the case where a person takes out a new lease; that lease runs on from the old one and there is no gap there. However, the case I am interested in is where a lease has expired and a lessee has put in an application for a new lease under the Landlord and Tenant Act; he remains on in possession until the Court hears his application and there may be a gap running up to a year or perhaps 18 months if there is an appeal. He is remaining on under the statute, not with the consent of the lessor, and therefore in such a case there would be an interim period in which he would not be able to get his allowance, that is, until after he had got his new lease. If the new lease started only from the period when the Court proceedings ended, that is to say, 12 to 18 months afterwards, then he would forgo the industrial allowance for the intervening period, even though he had been in possession during that period because he was in possession, not with the consent of the lessor, but under the provisions of the statute or by direction of the court.
This should be read in conjunction with Section 66 which refers to a lease including any tenancy. Subsection (1) of this section says that without a new lease being granted to him the lease is deemed to continue as long as he remains in possession.
That is only with the consent of the lessor. In the statutory case he has not got the lessor's consent, or it might be done under a court order.
I do not know what the legal meaning of "consent of the lessor" is in that case.
If he is there legally, is he not there with the consent of the lessor?
Yes.
If the provision was to the effect that a lessee remained in legal possession or something like that, it might be all right, but there is the possibility of a gap there. If the Minister has that possibility examined I shall be quite happy.
Section 66 may cover that.
It covers it provided the new lease starts on the day the old lease expires but if the new lease does not start on the day the old lease expires then I am not quite sure.
Question put and agreed to.
SECTION 30.
Question proposed: "That Section 30 stand part of the Bill".
I should like the Minister to make clear what exactly is covered by the phrase "temporary disuse"? Supposing, for example, a building is closed by reason of a long strike and is not used during that period, does that affect the industrial allowance, or is it that the normal paraphernalia of the trade must be shifted out of it, that it must be unoccupied as it would have to be unoccupied for a declaration for rates vacancy? Is that the nearest analogy I can get? What exactly is meant by "temporary disuse"?
It would not be affected by a strike. "Temporary disuse" would mean that the business had actually stopped. Whether they might intend to go on again is another matter.
Suppose the business had over-produced and had to close down for three months to get rid of stocks, is that a temporary disuse?
No. It would not have stopped business in that case.
It depends on whether there is an intention to restart?
I think so.
Intention is a difficult thing to determine.
Section 30 lays down that temporary disuse shall not count as a permanent ceasing of the interest. Is that merely to procure that a balancing allowance or charge will not arise or does it go further and does it mean that in that period of temporary disuse the annual allowance will be deemed to continue to run? Take the case of a building which belonged to the one interest for, say, 20 years and in the middle of that period of 20 years was in disuse for five years. When you came to the end of the period of 20 years and wanted to calculate your balancing allowance or charge, would you regard the annual allowance as being deemed to have been made for each of the five years in which it was in disuse?
The annual allowance would continue during a temporary disuse. However, you will find later on that in calculating the charge or allowance, if the place was out of action that makes a difference, but the annual allowance will continue as far as reducing capital is concerned.
I am not quite clear on that. When you come to calculate the balancing charge or allowance is the annual allowance for the period of disuse taken into account?
It is.
Question put and agreed to.
SECTION 31.
I move amendment No. 4:
To add to the section the following subsection:
(4) Section 18 of the Finance Act, 1919, shall have effect as if—
(a) a reference to premises which—
(i) is an industrial building or structure, but
(ii) is not a building or structure to which section 24 of this Act applies,
were substituted for each of the references in subsections (1) and (2) to mills, factories or similar premises and for the reference in subsection (3) to mills, factories and similar premises, and
(b) a reference to one-third of the annual value were substituted for each of the references to one-sixth of the annual value.
This is just consequential.
It is largely consequential. This is where we are changing the allowance for repairs from one-sixth to one-third of the valuation. It will mean that the building we are treating for annual allowances will be excluded from this. This amount for repairs will refer to buildings principally constructed before 1956. Buildings constructed since 1956 and which qualify for the initial allowance and annual allowance will not come under this section. The point about this is that if this amendment were not made, it is only buildings that would come under Schedule A which would qualify for this repair allowance. There is a possibility that there may be other buildings that would not come under Schedule A. An example given me was that if a company here started a subsidiary company in Liverpool, they would be strictly entitled to this allowance for repairs but they could not get it, unless this amendment were adopted.
If a company here starts a subsidiary company in Liverpool, where is the building?
In Liverpool. I am referring to a building in Liverpool.
Could the Minister clarify this? What happens in respect of buildings partly one thing and partly the other? Let us take as an example an hotel which has an old valuation of £30 and there is another £2,000 spent since 31st September, 1956, in adding on some more bedrooms. That then is revalued and the rateable valuation goes up from £30 to £40. Is it the situation that in respect of the additional £2,000 spent, they get their ten per cent. initial allowance, plus two per cent. on that part and they get their one-third repairs allowance in respect of the old part of the building of which the valuation was £30?
If the structure is a new structure.
An addition to that building of half a dozen extra rooms?
If it is a new wing, that would come under the new initial allowance and annual allowance and the other would remain on the old valuation.
Does the fact that the new wing comes under the new allowance cut them out?
I am told it is covered by sub-section 5 of Section 17 of the 1956 Act.
But at that stage it was a different proportion. The new proportion is applicable to the 1956 Act as well—one-third instead of one-sixth.
That would cover this. In other words, a new wing added on would be treated as a new building since 1956 and would, therefore, be treated for initial allowance. The old building would remain subject to the repairs benefits.
And, therefore, comes in under this section?
Yes.
Thank you.
Amendment agreed to.
Question proposed: "That Section 31, as amended, stand part of the Bill."
I am in some difficulty in regard to this section. My difficulty concerns the explanatory memorandum and what the Minister has just said. Subsection (1), as far as I can understand it, refers to "industrial buildings or structures within the meaning of section 17 of the Finance (Miscellaneous Provisions) Act, 1956." Section 17 does not say anything about when the buildings or structures were erected.
The whole Act does, does it not? Did not that whole Act refer only to structures erected about 30th September, 1956? I have not got the Act here.
Section 17 is merely a section that devotes itself to defining "industrial building or structure." Therefore, since Section 17, as I see it, does not confine itself to buildings erected after 30th September, 1956, and as I read subsection (1), the one-third increase should apply to all.
Would the Deputy look at subsection (2) (3) (ii)? It says "is not a building or structure to which Section 24 of the Finance Act, 1959, applies."
I am talking about subsection (1). Subsection (2) deals with: "Rule 5 of the Rules applicable to Cases I and II of Schedule D." Rule 5 deals with the amount which would be deducted in computing Schedule D profits. Subsection (1) here deals with Rules 7 and 8 of Schedule A. I can quite see that sub-section (2) is confined to buildings erected after 30th September, 1956. I cannot see how that restriction to buildings after 30th September, 1956, is applied to subsection (1).
Has the Deputy a copy of the Finance (Miscellaneous Provisions) Act, 1956?
I have it here. Section 17 confines itself to defining "industrial building or structure". It says:—
"(1) In this Part of this Act, ‘industrial building or structure' means a building or structure in use—
(a) for the purposes of a trade carried on in a mill, factory or other similar premises, or
(b) for the purposes of the trade of hotel-keeping."
It does not say any more. It merely defines what an industrial building or structure is. I think there is nothing in subsection (1) to restrict this to buildings erected after 30th September, 1956.
It should be ones before and not after.
Ones before, yes.
Deputy Haughey may know more about this, but under sub-section 1, a person does get the benefit in regard to Schedule A. Under sub-section 2, it is given as a deduction under Schedule D. The Deputy may understand it but I do not.
Yes.
Will the mechanics of the thing be that there will be a total as a mechanical operation? In every Schedule A there will be a reduction of one-third over the whole valuation and then when it comes to making the computation for the allowance——
That is right.
——only part of that one-third will be allowed as a credit against Schedule A? Will it be on a mechanical basis like that for easy administration?
Only a building that does not qualify under Section 24 of this Act can get it effectively.
May I come back again to my hotel? There is an hotel which has a valuation of £30 and a new wing was built to it in 1957. The valuation of the new wing is £10 and that new wing cost £2,000. Now the assessment for 1960-61 for Schedule A will be for the whole hotel; it will be on £40.
That is right.
An allowance of one-third will be taken off that assessment for Schedule A on the whole £40 or on the £30?
On the whole lot.
On the whole £40. I am beginning to see it now. Therefore he will only pay Schedule A on a valuation of £27?
Yes.
When he comes along to have his profits computed for Schedule D, instead of being allowed a deduction from his profits of £27 he will be allowed only a deduction of £30. In other words a deduction in respect of the old building apart from the new building?
That is correct.
I suppose it is the simplest way but it seems to be going a long way around.
I am going to say what I think this means and I should like the Minister to say if I am right or wrong. Subsection (2) deals with Rule 5 of the Rules applicable to Cases I and II of Schedule D. The effect of subsection (2) here, as I see it, in the case of a building which is an industrial structure erected before the 30th September, 1956, is that in the computation of Schedule D profits the proprietor will be entitled to deduct in that computation the actual outgoings on the factory or premises in the year, whereas in any other building he will be restricted to the Schedule A valuation. But that as regards Schedule A assessments as such, on any industrial building or allowances, the Schedule A assessment on all such buildings will be reduced by one-third in respect of repairs to be given on all industrial buildings. Is that correct?
So far it is correct.
Yes.
Why do we get the statement in the explanatory memorandum that "The section secures in effect as from 1960-61 onwards that, in the case of industrial buildings, including hotels, which are outside the scope of the initial and the 2% annual allowances by reason of their having been erected before the 30th September, 1956, there will be an annual allowance equal to 1/3 of the annual value for Schedule A purposes"?
Why is it that other buildings do not get the benefit of the one-third reduction for repairs?
Which buildings do not get it? The new ones?
The inference from the explanatory memorandum is that the new ones do not get it.
They do not.
They do.
The new ones get it under Schedule A and it is taken away under Schedule D.
That is right.
The deduction in their computation is restricted to the Schedule A valuation.
Will the Deputy let me come back to the hotel which has a valuation of £30 on the old part and £10 on the new wing? Suppose that instead of being owner-built, the landlord built it and leases it for £100 then the Schedule A valuation will be £27 —in other words, £40 less one-third, and when he comes along to be assessed on Case III of Schedule D in respect of the industrial buildings rent, he will get credit for the Schedule A on the new building as well as less one-third. One-third will be allowed only on the old building, and that— his credit having being paid already —will not be the effective payment of two-thirds of the total valuation but only on two-thirds of the old valuation and therefore he will have to pay the difference now.
He has got credit for it under sub-section (1) on Schedule A but does not get allowed that credit for Schedule D assessment and therefore has to be repaid from there. As I understand it, that is why the memorandum says that "the section secures in effect", because that is the way it comes back.
The Deputy has explained it correctly. Section 1 brings in all industrial buildings and Section 2 removes those that come under this Act, under Section 24, for initial allowances and annual allowances.
From what does it remove them?
From this section. This section changes the present allowance of one-sixth of the valuation for repairs to one-third of the valuation for repairs and makes that in the first section for all industrial buildings. Then in Section 2 it removes those that come under Section 24. In other words, it removes all industrial buildings erected since 30th September, 1956 and which qualify for an initial allowance and an annual allowance. As Deputy Sweetman put it, under Schedule A there would be two-thirds of the annual valuation charged in all cases but for those pre-1956 buildings referred to, as far as Schedule A is concerned they get the full annual value. In the computation of profits under Schedule D, for the post-1956 buildings, two-third valuation would be allowed and the full annual valuation for the pre-1956 buildings.
The full annual value or the full rent?
The full annual value.
If you look at the proviso in Rule 5, you will see it there.
Question put and agreed to.
Section 32 agreed to.
SECTION 33.
Question proposed: That Section 33 stand part of the Bill.
I take it that motor vehicles are brought in now for the purposes of balancing charges and allowances?
Yes.
I should imagine that is going to give rise to a great deal of trouble. I can understand balancing allowances and charges in the case of industrial buildings, and I can understand them in the case of plant and machinery, because these things do not change hands very much, but motor vehicles, in a great many cases, are replaced every year. The bringing of motor vehicles into the scope of this chapter means that we are going to have these quite detailed, involved calculations of charges and allowances every time a motor vehicle is changed. I think that will lead to a great deal of trouble and I strongly urge the Minister to leave motor vehicles out of the scope of this chapter altogether. They are in a different category from other items of plant and machinery because, as a general rule, when people buy plant or machinery, they usually keep it until the end of its effective working life. Ordinarily, there is no rapid turnover in working plant and machinery, apart from motor vehicles. I wonder has the Minister considered that?
There may be a certain amount of trouble, but in some businesses, of course, motor vehicles are very important and I am afraid we would have a good deal of protest if they were left out. It will work both ways. If they want balancing allowances, they will have to face a balance in charges. I do not think it would be possible to leave them out at this stage.
I do not think there would be any complaints if they were left out because, do not forget, you would still have obsolescence claims. Traders would be entitled to obsolescence claims because in most cases motor vehicles are replaced and, therefore, the existing arrangement with regard to obsolescence would apply. If motor vehicles were left out of this section, I do not think there would be any complaints from the taxpaying public. I do see that, if they are included, there is going to be a great deal of unnecessary trouble. I ask the Minister to consider that.
Question put and agreed to.
Sections 34 and 35 agreed to.
SECTION 36
I move amendment No. 5.
In subsection (1), page 24, lines 46 and 47, to delete "at the time of that event" and substitute "in the year of assessment in the basis period for which that event occurs".
We are dealing here with a change of ownership of a trade, for example, the retirement of a partner or the commission of a new partner. All the persons concerned may, if they all agree that the change should be treated as the discontinuance of a trade, take up a new trade. If that election is not made, of course, the change is ignored and they will just carry on in the ordinary way. When this section was reconsidered, it was felt that sub-section (1) as it stands did not achieve what was intended, where a partial change in ownership occurs after the event, giving rise to balancing allowances and balancing charges, and in the case of the sale of plant. It is only in that rather narrow sense that the section would fail—that is after the event of a sale, or whatever it would be, and before the year of assessment, if a change were made in ownership.
This is the same as the other amendment—the same situation as dealt with before?
Yes, I think so.
Amendment agreed to.
Section 36, as amended, agreed to.
SECTION 37.
Question proposed: "That Section 37 stand part of the Bill."
I should just like to say that Section 37 again proves my case about motor vehicles because motor vehicles are practically all the time being used, partly for business purposes and partly for other purposes so that under this section also you are going to have quite a deal of working out and calculating.
This section is implicitly for motor vehicles, it is true.
It is going to give rise to a lot of unnecessary work.
Is it proposed to issue any memorandum explanatory of Part 5 of the Act in due course, or are people like Deputy Haughey and myself to be paid for explaining it?
I think that would be done.
The less explanatory memoranda issued to the public, the better.
No, because we always get more work trying to explain the explanatory memorandum. I do not mean anything offensive by that.
Question put and agreed to.
SECTION 38
Question proposed: "That Section 38 stand part of the Bill."
If the Minister has anything in his brief that would explain Section 38, in about three sentences, I should be grateful. It took me a long time to understand it.
The purpose of the section is to ensure that a proper valuation of machinery and plant is taken into account in computing the balancing allowances and charges. How it does it is fairly extensive.
Question put and agreed to.
Section 39 agreed to.
SECTION 40.
Question proposed: "That Section 40 stand part of the Bill."
Could we have a word of explanation about Section 40?
Is there to be no interval at half-time?
This deals with a case where a balancing allowance was to be made in respect of an excess of expenditure over any sale moneys and balancing charges over the expenditure of money allowed. I think that is fairly obvious. That would be the case anyway. The expenditure and any moneys received would be put against the allowances made and that would give you the balance. The expenditure is arrived at by deducting the wear and tear allowances for tax purposes from the cost of the machinery. It follows, therefore, that there is a year or years during the life of the machine when no wear and tear allowance is made in respect of it. The amount of the balancing allowance on the sale of the machine would be correspondingly increased or the amount of the balancing charge reduced.
The only thing I am concerned with is that it says that wear and tear allowances shall be deemed to have been made and balancing charges could conceivably be made on the basis of that wear and tear allowances having been deemed to be made. What I want to be sure of is that the situation will not arise where the balancing charge would be made on the basis of the wear and tear allowance which is deemed to have been given.
I think you will see a safeguard mentioned several times in this Bill whereby we will not take more than we give.
The overall safeguard ?
Yes.
Question put and agreed to.
SECTION 41
Question proposed: "That Section 41 stand part of the Bill."
Is not the wording in the note at the side of the section "subsidies towards wear and tear" rather misleading?
Take the case of an employee who is running his own car and gets allowances from the employer towards the depreciation of the car. That must be taken into account. Perhaps some other term might be better, such as allowance, rather than subsidy. However, he is subsidised in any case.
It is unusual for notes to include a word that is not included anywhere in the section.
That is right.
Question put and agreed to.
Sections 42 and 43 agreed to.
SECTION 44.
Question proposed: "That Section 44 stand part of the Bill".
This means that my dictaphone and my adding machine are now included—is not that so ?—even though I am not carrying on a trade but a profession.
Yes, that is quite right.
For this relief, much thanks.
Question put and agreed to.
SECTION 45.
Question proposed: "That Section 45 stand part of the Bill".
We are going on to a new chapter.
Yes, Chapter III.
What is the date of commencement of this part of the Bill?
Sixth of April, 1960.
Then patents are the same as everything else?
Yes; it is the same.
It is the same commencement date for Chapter III as for Chapter II, is that not so?
Yes.
As far as I understand that is the case, but why does it say "the operative date means..."
The operative date, I think, is what makes the difference.
I do not understand that. I thought it was the same for the whole section and that it would start on 5th April, next year, 1960-61.
In line 45 it says: "‘the commencement of the patent' means, in relation to a patent, the time as from which the patent rights become effective." That is a phrase I am not too happy about. Is that the date on which the patent is granted?
What section?
Section 45, sub-section (1), line 43 "the date as from which the patent rights become effective".
When he becomes entitled to the patent rights.
In other words, it need not necessarily be the date the patent is granted?
No.
Question put and agreed to.
SECTION 46.
Question proposed: "That Section 46 stand part of the Bill."
I am not clear as to what happens in the case of a company which purchased a patent before the operative date. As far as I can see, it is not the intention of the Bill that that patent should come within the scope of this Chapter at all. I want to make sure I am right in that. Is that not correct?
If he purchases it when?
A company which purchased a patent before the operative date, before the passing of this Act, does not enter into the scope of this at all?
No, that is right.
I think there is a provision somewhere—I cannot put my finger on it—that if a person purchases a patent during the current year, it operates, but the operative date is next year.
Yes.
But if a person purchases a patent anytime prior to 5th April, 1959, he gets no spreading relief.
Yes, he is out.
In relation to that, quite clearly from the whole pattern of this legislation—not going into its merits or demerits now—he gets his allowance after 5th April, 1960, or gets his spread—in which I am interested more than anything else—but I do not see why the Minister could not cover the case where a person spent £10,000 in 1957 on the purchase of a patent that was going to run for 15 years from 1957. Why could he not get the appropriate one-fifteenth of that for the year, 1960-61, and the remaining 11? It seems to me only reasonable that he should get it, but as the Bill is drafted, he will not get it.
I appreciate, of course, without question, there can be no possibility of going back behind the assessment year, 1960-61, but it seems to me that he should be entitled for the assessment year 1960-61 to spread his capital payments made for a patent because they were made just as much in ease of the same situation prior to 5th April, 1959, as they would have been after it. I cannot see any argument for restricting the relief that he is to get in 1960-61 to purchases during that year and I would like the Minister to tell us—if he is not prepared to agree—what is the reason for it?
One difficulty I see here is that whenever the State gives relief from income tax, it tries to catch the tax at the other end. We are doing that in the case of patents. The present law in regard to patents is that where a person hires a patent, he is exempt from income tax because it goes under the heading of ordinary expenditure but we are now extending this to a person who purchases a patent and we say: "We are relieving you of income tax over the next 16 or 17 years." Then we have to get that income tax from the seller and that is dealt with in the section. It would be possible to make the concession retrospective, but we could not make the penalty retrospective in this case; and that is one of the reasons why we cannot go back.
Then, in fact, you are giving nothing by this. You are giving away with this hand and taking back with the other hand exactly equal amounts.
The Minister is permitting the capital expenditure to be spread over 17 years, but in so far as it is a capital receipt, the Minister is seeking to collect it in six years. I think that is somewhat iniquitous. If you are going to allow the expenditure over 17 years, why not take the receipts over 17 years also?
I thought the idea of this was to make it easier for firms to get greater productivity by utilising patents.
That is what we thought when we read the Budget statement first.
The usual life of a patent, I am told, is 16 years and so we spread the tax over 17. Every Deputy knows as well as I do that it is much easier to give out the benefits than collect them back. I do not wish to take any chances by spreading the collection over 17 years.
The Minister could go to 12 years.
What is the purpose of these operations, if you are going to give out benefit and then take it back?
We want to give benefit to the man who purchases the patent.
What benefit is it going to be, unless you are going to increase the flow of invention and stimulate invention? It will be as broad as it is long, in the end. This will not stimulate invention. In fact, on the point now made by Deputy Haughey, the result may well be to damp it down, because the benefits will only be coming in over 17 years and the poor devil who has utilised his brains to produce the patent gets the knock in six years. Therefore, he has to pay three times as much as the person who is getting the benefit from the purchase. This is not going to stimulate invention at all. On the contrary, I think it will do the reverse. It hits the person who is inventing. What happens, incidentally, if the owner of the patent lives outside this country? What do the Revenue Commissioners get?
If he sells an Irish patent, he is covered.
Do you not collect as long as he is registered or as long as the patent is registered here? Under international law, if the patent is registered here, you can collect from the vendor as well?
From the vendor, yes.
What urge will there be on a vendor to sell to an Irish company, then? None, that I can see. On the contrary, the reverse will happen, I think. It seems to me that this whole conception is very different from what I understood it was at Budget Time.
It will be more so when it comes to Section 49.
There is a difference between an Irish patent and a foreign patent sold by a foreigner. If it is an Irish patent sold by a foreigner, income tax is collected; if it is a foreign patent sold by a foreigner, income tax cannot be collected.
That is, a foreign patent covered here?
Anyway, we cannot collect the tax.
For the life of me, I cannot see, in the light of this new information, where the advantage of this extremely complicated legislation comes. Chapter III of the Act, the Minister will agree with me, is one of the most difficult Chapters to understand—or perhaps I find it one of the most difficult to understand because I have no inventive mind or association with patents. I am not like Deputy P. J. Burke, who finds it easy to invent anything he desires at any time. I am not quite in the same way. I just do not understand this Chapter. If the position is to be that we are to have an allowance spread over 17 years and a rake-in over six years, there is no benefit that I can see coming anywhere. Obviously, therefore, if there is the benefit the Minister indicated in the Budget, I have not understood it yet, nor has Deputy Haughey, apparently— who probably has more experience of patents than I have. I understand they are very profitable, though I have no knowledge of that aspect of them.
Section 46?
I do not understand it, Sir.
Question put and agreed to.
Sections 47 and 48 agreed to.
SECTION 49
Question proposed: "That Section 49 stand part of the Bill."
When the matter dealt with in this Chapter was mentioned first in the Budget Statement, it seemed to me to be a completely desirable innovation. It looked as if manufacturing companies were to be given facilities to buy inventions and that it would lead to increased productivity. In that respect, it was wholly desirable. Now it transpires that this Chapter goes further. This Chapter goes on to make an inventor liable to income tax on the capital sum which he will get from the outright sale of his patent.
The existing law, as I understand it, up to now was that if an inventor got royalties from his invention, he paid income tax on his royalties as income. That was fair enough. The matter was pushed a little further by the fact that if he got a lump sum and royalties, then the lump sum and royalties were treated as income and he was taxed on them. Even that also seemed reasonably fair. Now here in Section 49 we have an entirely new departure. We have the proposal to tax an inventor on the sale of his capital asset. Where he parts with the entire rights of his invention for a capital sum, that capital sum is to be taxed. That seems to me to be unjust and unfair to the inventor.
Furthermore, it seems to be bad from the point of view of the national interest. In the state of our economy, one of the things we need today is to encourage productivity in every possible way. We should be trying to encourage inventors, people who have technical skill and know-how, to bring forth inventions which will help our industry. For no apparent reason at all that I can see, we are going all-out in this Section to kill any enthusiasm these inventors might have and to make the process of invention hardly worth while for anyone. After all, if any of us has a capital asset of any sort and disposes of it, the proceeds of that sale are free of income tax. An inventor might spend the greater part of his life working out some invention and that invention undoubtedly, by any standard you like to apply, is a capital asset. If he disposes of it outright for a capital sum, that amount should undoubtedly be exempt.
As I said, the provisions of this Chapter, in so far as they relate to the sale of patents as between one company or another, or as between one person and another using a patent, are desirable provisions and although I would quarrel with the differential between 17 years, on the one hand and six years, on the other, I would let that go if the Minister is not prepared to do anything.
It seems that if a manufacturing company buys a patent and is allowed to charge the cost of that patent against its profits over a period, that certainly is an incentive to that company to increase its productivity. One can also see that, in the case of that company, when it would sell the patent, it should as a corollary be liable to tax on the income received from the sale. That is one line of country. The provisions of this section in relation to that type of transaction seem perfectly fair and equitable and will have a good effect. But this other aspect seems to be a completely different matter entirely.
I would sincerely ask the Minister to reconsider this provision in Section 49 and the whole concept of taxing the original inventor on the capital received from his invention. I cannot imagine that any substantial amount of revenue will come from this provision. I am sure that the amount of really worthwhile inventions in this country which would bring in any substantial amount of income in capital form to an inventor could not be of any significance in relation to the revenue. It certainly could be of very great significance, if this provision has the effect I imagine it will have, in damping down the enthusiasm of inventors and generally making the game of inventing not worth the candle.
The Bill provides that this capital income will be spread over a period of six years. That is not very long in the case of an individual. The invention could represent the fruits of his life's work. It could represent to him his entire capital. The fact that that would be all brought into six years and taxed on the basis of income in six years could be very unfair, unjust and constitute a great hardship on such a person. I would strongly urge the Minister to reconsider this section.
I can understand the Minister's difficulty in relation to two companies, one a subsidiary of the other. If it were not for his recompensing section you could have a great deal of tax avoidance by the selling of patents by a parent company to a subsidiary. I can understand perfectly the necessity to have this balancing section in relation to the six year period, but where there is an individual inventor the position appears to me entirely different. I think the effect of this section will be that once an inventor has patented his invention and sold it, he will leave the country forthwith, because if he stays here the proceeds of his sale will be taxed over the next six years, but if he goes away his sale price will not be taxed.
The effect of this section seems inevitably to be to drive individual inventors out of the country after they have produced their first invention. I do not know whether the position is the same in England, France or America and whether, if he goes there, the inventor's capital receipts will be taxed or not. It is obviously necessary for the Minister to have some safeguard as between parent company and subsidiary and as between two companies playing alternate patents with each other. I can see an easy method of tax avoidance in relation to companies like that, but where it is an individual inventor it is an entirely different matter.
It seems to me that the effect of the section will be to drive out of the country anybody owning a patent as soon as they have effected their sale. They will not be assessed for each of the five succeeding years to which reference is made in sub-section (1). I do not think that is what the Minister wants to do, but that will be the effect of the section.
The present law in regard to patents provides that if a person buys the use of a patent, his expenditure is liable for relief from income tax because it is ordinary expenditure. The person getting the payment for the use — that is the inventor or owner of the patent— pays income tax on his receipts in that case. The law was different with regard to the buying of patents. Representations have been made to me over the last couple of years—and probably were made to Deputy Sweetman when Minister—by manufacturers here in regard to various points. Some of them are being conceded in this Bill. One point they always urged was in regard to the question of a manufacturer who buys out a patent. One of the arguments they used was that they were at a disadvantage compared with the English manufacturer, because if the English manufacturer bought a patent, he could get relief from income tax on the sum expended. The English law is that they give relief but they charge the seller income tax as we are doing here. These sections are extending the existing practice in regard to the use of a patent to the selling of a patent. It is in line with what is done in England and what the manufacturers here have always been asking for. I do not think we would be justified in doing anything less than we are doing.
There is the difficulty mentioned by Deputy Sweetman, but that could be got over another way. That is the difficulty of a company selling a patent to a subsidiary or a principal and in that way defrauding the revenue of a certain amount of money which might otherwise be due for income tax.
Not defrauding— that would be illegal—but avoiding.
Sorry; that is the expression, avoiding income tax. I do not think it is reasonable to expect that we should extend this relief without making a reciprocal arrangement at the other end for charging income tax on the amount paid.
But the Minister has not made it reciprocal. The Minister, on the one hand, gives out an allowance over 17 years, but the other hand—the hand clawing in—is working at three times the rate. I admit it is spread over six years only. But if, for example, a patent is sold for £1,700 the allowance is at the rate of only £100 a year, but the man who has patented the invention is taxed approximately at the rate of £300 a year. That is for a shorter period, I agree, but in relation to tax, all of us look on the short term rather than the long term when paying it. It is not fair therefore to say it is a recompense. It is a much more severe collection than an allowance.
Would the Minister not agree that the original inventor is in a different category from the commercial concern buying and selling a patent as part of their business? I am quite prepared to admit the principle that if he grants to a commercial concern the right to set off against their profits the purchase price of patents, the corollary should apply and that commercial concerns should be taxed on the income they receive on the sale of patents. But it is a completely different matter to tax the original inventor on the capital sum he receives. As the law stands at the moment, he is taxed on the royalties he gets. That is fair enough. In this country we are giving all sorts of tax incentives to manufacturers and exporters to increase their efficiency and to increase their business and here is one case where we could get a very important contribution from an intelligent section of the community, namely, those people who have the capacity to invent things, and we are deliberately setting out to discourage them in their efforts.
I do not think there is any validity in the Minister's argument about its being more difficult to get in revenue than to make an allowance in this case, because, there is a provision that if the person dies, the spread immediately becomes crystallised, as it were, into the year of death so that the Minister would not, in effect, be giving anything away by increasing that six year period. I would urge him, first of all, to scrap this provision altogether with regard to taxing original inventors on the capital received. If he cannot do that, he should certainly consider spreading the capital income over a far greater period than six years.
I cannot follow the Minister's thesis that because he has judged it right in Section 46 to provide relief for a firm or an individual who purchases a patent, that firm or individual should be allowed under Section 46 to write that off over a period of 17 years. I cannot see any reciprocal obligation on the person who has invented the patent to contribute to a writing-off process which is devised for the benefit of the purchaser. There is no relationship between those two persons. There is a relationship between each of those two persons and Revenue, or the Exchequer, but there is no obligation as between the two persons to whom the Minister referred, except the relationship of vendor and purchaser of an asset. That asset happens to be a patent.
I want to draw an analogy now, and I admit that it is not by any means perfect; it is an imperfect analogy. If a person buys a ship from another person, the first person writes off the ship over a period of years, but the vendor of the ship may be liable for income tax, if he makes a profit on the transaction. If he is not a shipbroker, I doubt if he is liable for income tax at all. It is his sole capital asset and he brings the proceeds of that sale into the balance sheet a fixed asset instead of a liquid asset. Suppose somebody said to him: "Because you sold a ship for £¼ million and converted your fixed asset into a liquid asset, we are now going to tax you at the current rate of interest at the rate of £40,000 a year for four years." I think everyone in the House would be shocked. Or would they? I would be shocked.
Deputy MacCarthy says he would not be shocked.
Deputy MacCarthy is the admiral of the Port of Cork and that may affect his judgment in this matter. I put it to him: why should you place a levy upon a man who converts a fixed asset into a liquid asset? That does not seem to me to be the proper occasion for the impact of taxation at all and if you are going to allow the purchaser certain relief, that relief ought to be provided at the expense of the Exchequer and not at the expense of the vendor. If we think it is in the public interest to facilitate entrepreneurs in this country to purchase up-to-date equipment or patents or anything else which will induce a higher degree of efficiency in Irish industrial production, it is a matter for the community to determine, and if they want to promote that procedure by taxation reliefs, it is up to them to do so.
It seems to me to be a very odd principle that because we in Dáil Eireann think it is in the public interest to provide a tax relief for the purchaser of a patent or fixed asset, the vendor of the fixed asset must provide the Exchequer with the money to pay that relief. The Minister's mind is being strongly influenced by the provisions of the British Finance Act and having considered the representations made to him by potential purchasers of patents and having determined to meet their case, he has gone on to the next step which I do not think can be defended.
Is there any fault in the analogy that I have drawn? I do not think there is. Does the Minister consider that the owner of a patent is entitled to retain his ownership and enjoy his royalties and if he contents himself with that, we will leave him whatever royalties he may receive? That is all right, but suppose he disposes of that source of income and converts it from a fixed asset into a liquid asset. I do not think that is an occasion for taxation at all and that we do him a grave injustice if we tax him. Perhaps the Minister would give us the benefit of his views on that aspect of the situation, divorced altogether for the moment from the benefit that he is conferring under Section 46 and from the liabilities that he proposes to impose under Section 49, because I do not think there is any nexus between those two categories of persons. I think the merits of the case remain on behalf of the owner of a patent under Section 49 quite independent of the benefits which the Minister has decided to confer on the purchaser of the patent under Section 46. On the merits of the case, the person under Section 49 ought not to be liable to income tax at all, and certainly, if he is the original inventor.
In dealing with this matter, I have given so far as I could the reasons why I think it necessary to charge this income tax on the vendor of a patent. The only point I wish to deal with now concerns the two different periods. The period of 17 years is put in because, as I have explained already, under Irish law a patent is valid for 16 years and if a person pays a lump sum it is obvious he has not the benefit and use of it for 16 years. Looking at it from that point of view, it is only reasonable that the tax should be spread over 16 years to make it 17 years for the purpose of income tax.
On the other hand, a person who sells a product of his ingenuity, if he is the inventor he gets a lump sum; in other words, he gets money down. It is not that he has the use, as it were, of it for 17 years, but he gets a lump sum and, therefore, there is every case for charging him income tax for a shorter term and the term of six years appears to be reasonable, so far as that is concerned. I do not know whether it is possible or practical to make a distinction between an inventor and the dealer, as it were, in a patent.
Deputy Haughey thought that when the inventor first sells a patent he should get the full amount and not be charged income tax. If the inventor were to sell to a dealer and the dealer soon after sold to a manufacturer, and he had to pay the income tax, that might not be an equitable transaction. If the dealer knew the law and knew he would have to pay income tax he could, I suppose, guard himself against that. I think it would be difficult to make a distinction as between the inventor and the dealer and I am impelled, therefore, to ask the Dáil to leave these clauses as they are.
Could the Minister give us any indication of the kind of tax collected in any year from patents?
I think it is very small.
Does that not emphasise our point that it cannot make any difference from a Budget balancing point of view? I am quite certain that the amount involved is trifling. What we want here more than anything else, if we are ever going to succeed, is research and productivity. I understood that point of view was accepted. Apparently, in relation to one of the things quite fundamental—inventions—it is not acceptable. The reverse is being accepted.
What we are doing in this section is raking in more money for the first six years. From 1960 to 1966 we will be getting in more tax. It will be 1977 before the benefit of that tax gets round. That seems utterly unrealistic. This is a very complicated chapter to deal with what must be virtually a very trifling tax collection. The amount of tax coming in and the number of patents sold in respect of which there would be collection is so small that the game is not worth the candle. This may well have the effect of driving an inventor, or two, away. Even if it only drives one inventor away, the amount of revenue the Minister will get is not worth all the bother.
This is the most complicated series of provisions in any Finance Bill so far. The Minister has not defended assessment on the inventor by saying that it would otherwise be impossible to prevent tax evasion. On the contrary, he said it would be possible to deal with any such evasion in another way. I would appeal very seriously to the Minister to forget entirely about assessing the sale value of the patent and give the manufacturers the allowance. We need modern inventions for our industries if we are to have productivity.
I agree with the Minister that the spread of the purchase price over 17 years will encourage people to buy out patents and use them. That is a good thing and a good tendency. It is a tendency which will assist productivity. The amount, however, which will be collected at the other end for the sale of patents is negligible and it is not worth risking the flow of invention, which is small enough. God knows, to-day, being dried up in any way or taken to some other country.
One can visualise a situation in which inventors would come to the Minister and say: "We perform an important national service. It would be in the interests of economy generally to give us an incentive to invent more and better techniques. As you have given concessions to exporters whereby profits from exports are free of tax, we would ask you in the same way to free any profits which we may make from our inventions as an incentive towards improving the economy generally." There would be some foundation in inventors making that claim. What we propose to do here is exactly the opposite. Far from giving them encouragement or incentive, we are going out of our way to discourage inventors, and that for the purpose of getting an income which, I am quite sure, will be practically negligible.
Another point I should like to put to the Minister for his consideration is the time taken to perfect an invention, particularly if it is a mechanical or technical invention. The worker on that invention spends, in addition to his own time, a considerable outlay of one kind or another on tools, equipment and materials. As I see this chapter working, he will not be allowed that expenditure against the capital income he receives. On the one hand, the income is received on the sale of the invention. He is allowed any outgoings in regard to the patent but the other expenditure, spent over a period of years prior to the sale, will not be taken into consideration at all and will not be allowed against the capital sum received.
I was talking to a man this morning who is concerned, in a semi-Government capacity, with the promotion of industrial enterprise here. He was appalled at this provision. He said it would have a very bad effect and was quite contrary to the general tendency of tax policy in relation to industry in recent years. I only hope that between now and the Report Stage the Minister will have second thoughts in this matter. He said there might be some difficulty in distinguishing between an original inventor and a dealer in patents. I do not think there would be any difficulty.
I visualise the situation as follows:— the first sale would not count so far as these provisions are concerned; thereafter the provisions would apply to any subsequent sale or purchase. I cannot see any difficulty arising out of that. The inventor would sell his invention to a company which would exploit it for a number of years, and then sell it to another company. After the first sale subsequent sales would be brought within the scope of this chapter. The original sale would not.
I urge on the Minister to consider at least the case of the original inventor. I am not in the slightest degree primarily concerned about the man who deals in patents, if there be such a man. I do not know whether there is or not. I do not believe this chapter will affect a great number of people. I am thinking rather of the rare individual, one I have in mind, who produces a worthwhile patent and, as a result of his diligence and skill and, indeed, genius, suddenly finds himself in the presence of potential wealth. He has a patent for which some large concern, like Cossor or Pye Radio or somebody, is prepared to give £100,000.
What happens to that man under this Section? Heretofore his genius had been rewarded and there was conferred upon him for the rest of his life substantial financial independence but, if I understand this Section correctly, the position now will be that he will be deemed to be liable for income tax on £17,000 per annum for six years. Is not that so? The income tax on that will amount to about £11,000 per annum. That is a rough estimate. He will be left with £6,000. So that, instead of getting £100,000, he will get £36,000 and the Revenue will get £64,000. Do we seriously want to do that? I do not suppose there will be six such persons in a century who may fall under a serious sanction of this Section.
What troubles me is this: I think the Minister made up his mind to make a concession to manufacturers who wanted to purchase patents and then found there was a parallel concession in the British code but that they had sold the idea to Parliament, in the rough and tumble of the British House of Commons, that certain consequential provisions were necessary which they shot through the Committee in the British House of Commons, and the Revenue Commissioners in the British House of Commons, as they have a thousand times done before, in the deligent discharge of their duty, protected the Exchequer at the expense of some poor sheep who gets shorn inadvertently. He does not discover he is shorn until five or six years after the appropriate Finance Bill has become an Act and he is then informed that Section 35 of the Finance Act, 1953, provides that he must pay income tax and by that time everybody has lost interest and the fellow pays up and has to grin and bear it. Another egg is broken so that omelettes may be made.
The plain fact is that if somebody discovers a patent for making tin whistles and sells it for £40 to a tin whistle manufacturer the impact of this Section will be nil. The only place where this Section will have a substantial effect is in the case of a genius who has lit upon something really significant and is offered by a combine a handsome price for it. The Minister may say: "If he does not like to sell it, he can license it," but the answer is: "not so-and-so likely" because what will happen is that none of these big boys will license it from him if the right remains in him to license competitors. They will all sit back and wait for the patent to die, which it will proceed to do, and with the passage of every year this man's asset trickles through his fingers like sand until eventually he is left with nothing and the big boys move in then and make use of him.
His whole asset is that he can go to some big operator and say: "I have the means of conferring an effective monopoly of this product on you for 16 years and for that are you prepared to pay me?" At present, if the patent is good enough, an entrepreneur capable of exploiting it is prepared to pay for it but we, by this utterly incomprehensible section, announce: “For every £100,000 you get, the Exchequer will appropriate £64,000 and if you get £250,000 for it, then you are sunk altogether because we shall only leave you a shilling in the £. The Exchequer scoops the whole pool if you have the misfortune of getting a really good price for it.”
Is there anybody in this House who believes that that Section is justified? I do not believe the Minister believes it is justified. We are now in the awkward situation that he has trotted in here with it and he is not going to give way but I do suggest to him that he might make a gesture and say that between now and Report Stage he will see if it is possible to differentiate— and I see no conceivable difficulty about doing so—between the person who is the inventor and the subsequent purchaser. If the Minister is prepared to say that if the inventor of a patent who is the first person to register the patent, sells it, this section will not apply to him, I think that would be a fair enough compromise but I do urge on the Minister, not only in the name of equity and justice, but in the name of romance, to leave us at least the thought that some day we may have a brilliant flash of intuition that will open the doors to unimaginable wealth to us. Do not take that wretched fraction of gilt off the gingerbread of life by passing Section 49 which informs us that, even if this miracle does enter into your life, the Revenue Commissioners will come in with it and, for every £ you collect, they will take 19/-.
This is no jeopardy to the Revenue but it would be a gesture by the Minister for Finance to the genius of his fellow countrymen to provide that if it should in future flash, then all combustion will not accrue to the advantage of the Exchequer and nothing but the ashes be left to the genius. Would the Minister consider differentiating between the original inventor and any subsequent purchaser in regard to this particular section? I would like the Minister even to say "No" to me, if that is what he means.
No.
In that case, would the Minister tell us why? If he says "No", will he tell us why he is saying "No"? The amount cannot be of any material consequence in a tax revenue of £25 million for income tax and surtax purposes. It cannot mean anything. Does the Minister agree that he said a moment ago that there would be a simple method of dealing with the tax avoidance case as apart from the genuine case? If the Minister's case in defence of Section 49 was that it was impossible to differentiate between the avoiding case and the genuine case, then I could understand the Minister's point of view and one would apply one's mind to seeing if one could discover some method of closing the gap while at the same time allowing the genuine case through but I gather, not merely from the tone of the Minister's "No", but from the fact that he said earlier that it should be possible to deal with avoidance in another way, that that is not his argument.
I cannot, for the life of me, see why a person should be taxed over six years because an allowance would be given to another person over 17 years. The effect of the taxation over six years means, first of all, that the Revenue is collecting it, even from an income tax point of view, in a very much shorter period and, apart from that, for the individual inventor—and it is the individual that I am thinking of; I am not interested as to whether there may be by-play between one company and another—it will attract not merely income tax but surtax. The effect of making the sale price liable to taxation over six years, with surtax at the graduating scale, virtually means that anybody, unless he is a complete idiot, will not sell a patent in future. I cannot see Deputy Haughey, in his other avocation, advising any individual patent owner to sell his patent as long as Section 49 remains. Certainly, I could not in conscience advise that course because it would mean in effect that what he was going to do would be to make himself liable to income tax and, because of the fact that the entire sale price is concentrated in him over six years, to surtax on a rising scale. How could we possibly suggest that it would be worth his while, in those circumstances, to sell?
I understand that the Minister's case was that the manufacturers who were concerned wanted to get people to sell out their patent rights to them. They wanted to buy outright their patent rights and, because they had bought outright their patent rights, they had not the benefits available to their competitors which he has brought in under Section 46. It is a very laudable point of view. I could not agree more that it would be more desirable for manufacturers to buy out patents rather than to hire them. However, in order that a manufacturer can buy out a patent he has to get the owner of the patent into the mood of a willing seller. He will not be a willing seller so long as Section 49 remains. It will be to his disadvantage to sell so long as that section remains. If it will be to his disadvantage to sell, how then can the manufacturer buy?
The effect, in relation to our circumstances here, appears to me to be that no Irish patent owner, no Irish inventor, will sell, if he is an individual, under any circumstances. If the manufacturer buys a patent which is not an Irish patent but a foreign patent, a not quite so good seller will get the benefit. He will find that, for instance, a person resident in France is more eager to sell him a patent which is not quite so good than the owner of an Irish patent.
The owner of an Irish patent would be liable to tax. Here, however, under the international patents law, the owner of a French patent, even though it is not quite so good, will be anxious to sell. The manufacturer here will get the same benefit. The effect here will be that it will act as a disincentive. That was not the purpose for which the Minister introduced Chapter III.
I would seriously say to the Minister that all of us can accept that he did not, perhaps, visualise the complete repercussions of this section. He would be a miracle-man if, before he came in here, he could have visualised the complete repercussions of the 80 long sections included in this Bill. He is not losing anything by agreeing that, in relation to the implications of this one section, he did not see where he was travelling. On the contrary, he would do not merely the general economy but himself a service by admitting that he did not see the implications and that he is now able to change his mind and the section.
I think I said I thought we could safeguard against any avoidance of income tax by methods other than charging income tax at the other end. I have not consulted experts on that and I do not know whether or not it is true. Perhaps it is.
Some of those who were arguing against me said that the matter is of no account to the revenue and, if it is not, then it does not matter very much to anybody. Deputy Dillon argued that a person might get £35,000 and the revenue £65,000. That is a considerable amount to the revenue. It is not to be ignored if there are sums like that knocking around. Deputy Dillon could have taken £1,000,000 rather than £100,000 and given the revenue a lot more. It shows the absurdity to which these questions can be reduced when people come in here without thinking a lot about a matter and then proceed to make an absurd case against it.
Only two things that have been said merit any attention. The first is where the inventor could get special treatment as compared with others. As far as I know, it would be difficult to do that without creating inequity between him and the person who buys it. I do not think the inventor, if he sells to another person, will suffer a great deal by this provision.
There is no use in talking about the matter as one would about a ship or a building. An invention is a product of the brain. It is much the same as writing a book. A person who writes a book has to pay income tax on his profits.
On the royalties, but he does not sell the book—not since Charles Dickens. Nobody but a lunatic sells his book outright.
He can sell it outright and very often he does so, and film rights, too. It is not the same as building a ship or anything like that. It is a product of the brain and it is treated in the same way as other matters of that kind.
The other point is that we are spreading the tax over 17 years and collecting it over six. If a man buys a patent, then, under the laws here, it lasts for 16 years. We assume he is using it over those 16 years. He has spent his money in buying it, in the first instance. His money is being put to use over those 16 years. There appears to be a very good case for spreading the income tax over that period. On the other hand, the other man gets a lump sum down which is quite a different matter. There would be quite a good defence, I think, in income tax law to say: "Pay on the lump sum". But, by spreading it over six years, it is much more favourable to him than asking him to pay in the one year. Therefore, I do not think there is a parallel between the two cases even though there are 17 years in one and six years in the other. I do not think it can be made out that there is a parallel to be drawn there.
Suppose a man sells a patent for £21,000. He is then assessed in respect of that on the basis of £3,500 a year for six years. That has the effect of his paying not 7/- in the £, which is the amount of the allowance, but 10/- because he is brought into the surtax 3/- rate as well. If we were involved only in income tax for an individual then I would not agree with the Minister but I can see his point of view. However, we are not involved in income tax only. We are involved also in surtax. The effect of concentrating the proceeds of sale into six years—agreed, it is not as bad as if the whole £21,000 were concentrated into one year—means that the revenue is getting a surtax benefit over and above even the income tax allowance that is made to the purchaser over the 17 years.
Quite apart, therefore, from the acceleration of the collection of income tax revenue, the revenue is getting a benefit as well. There does not seem to me to be any justification for that. The effect of the concentration of revenue into six years inevitably means that it goes into the surtax group as well as the income tax group.
When I say that the revenue received from patents is not of any great value I mean of any great value, comparatively, to the revenue. The Minister will agree with me in that. However, what is not of any great consequence in relation to the size of the Bill we are examining is of the greatest possible consequence to the individual inventor. It will mean a very great difference to him and the concentration in this way over six years, while it is not as bad as a concentration in a single year, will mean he will pay at a higher rate of tax taking income tax and surtax together. The Minister is making a mistake in doing that. From an absolute revenue point of view there is nothing in it because the amount involved is very small.
Deputy Dillon said he was using this as an example of romance. We all like to romanticise occasionally and to hope untold riches will one day come our way but in the practical, everyday working of Section 49 there will not be a lot in it. There will be practically nothing in it for the revenue but there will be hardship on certain people, because they will be taken out of the ordinary rate and might be taken over and above the earned income rate. Incidentally, a question that occurs to me is do you get earned income allowance? I think you do, but you may be taken out of the rate by the concentration.
The Minister must look at this from the point of view of the ordinary individual. The ordinary individual who is assessed in this way on the proceeds of sale will pay as a result of the concentration a much greater rate of tax than the allowances he would receive under Section 46. I would urge the Minister to consider between now and the Report Stage whether he could not waive Section 49 for the original inventor provided—and I will support any proviso he may bring in —there is some way of ensuring that there cannot be tax avoidance by one company selling to another. Indeed I am not so worried about the company. If, in fact, the inventor is employed by a company then there could not be the surtax hardship I have mentioned. There could be hardship if there is a very small company going up over £2,500 for C.P.T. But that is not of the same serious degree as the case of an individual original inventor. In his case there can be great hardship as a result of Section 49 and I would urge the Minister to consider it before the Report Stage.
I want to acquit the Minister of any desire to be rude to me though his first sentences appeared open to that interpretation, but I am bound to tell him I am not exaggerating. The only man I ever knew who sold a patent got £1 million for it. Although the case I am now making may not chime with the case Deputy Sweetman made, I want to deal with this on the basis of equity and justice. I think a man is entitled to sell an invention of that kind without rendering himself liable to income tax. He is converting a fixed asset into a liquid asset. The possibility of an individual selling an invention for £100,000 or £1,000,000 is extremely remote but it may turn up once in a generation. All I am asking is that, if such a thing should happen, our law should not unfairly bear upon the original inventor.
If the Minister would consider the position solely of the original inventor then I would not have much complaint to make, if he and he alone were exempted from the impact of this Section, but I think we may be doing a very real injustice to a very restricted number of persons in the future unless we differentiate between the subsequent purchaser and the exceptional genius who is the first inventor, who registers a patent and desires to dispose of it to somebody capable of exploiting it to the full during the lifetime of the patent under our patent law.
I say again it is extremely difficult to distinguish between the inventor and the purchaser. I was about to make a suggestion, however, in response to Deputy Sweetman but Deputy Dillon has put me off by mentioning £1,000,000, because it would look very small if anybody came along and got £1,000,000 for an invention. I was going to suggest that if the six years would put a man into the surtax position I would consider an amendment that would spread it further to meet that case. That is the only thing we can do in this connection.
Do not forget that there is a provision in Section 55 that if a man dies within the six years, say, after two years, the whole amount comes in for taxation in that year.
Would the Minister consider an amendment on the lines of excluding surtax altogether from the sale price? That is a precedent which is difficult. Perhaps the Minister would be wiser from his own point of view to abandon it altogether.
The Deputy will realise that the person concerned may have other income.
I am trying to travel a little bit of the way with the Minister. The sale price income would not rank for surtax at all. The Minister would be wiser, from his own point of view, to drop this rather than create that precedent.
Make it over the seventeen years.
Even if it is made over the seventeen years there is the difficulty that if a man dies in any year it all flops in that year. Spreading it over the seventeen years does not get out of the surtax difficulty if he dies in any of those years. The only way to get out of the additional imposition of surtax arising because of sale is to state specifically in Section 49 that none of the income provided by this section would rank for surtax purposes. That is a precedent which I think would be unwise. Once you start that you are opening a vista that is there for evermore. It would be far better tactics—to use no higher word and provided the word "tactics" is not too low a word—to drop the collection altogether from an individual holder of the patent.
The more the Minister tries to hedge round his concession in relation to further spreading in the case of surtax and the rest of it, the more he will get himself involved in difficulties of interpretation and in difficulties by the precedents he would thereby create. Frankly, if somebody invented something in this country and got a great deal of money for it, the benefit that would accrue to the country as a whole would be quite adequate in relation to income tax without any collection of the surtax on it if he decided to sell.
I press the Minister from the point of view of simplicity and from the point of view of following precedents for the future to drop the whole section. Unless he does, he will get himself hedged round in every way with things that will be cast at him from other sources, by people who are hit and which will also be cast at his successor. The amount involved in this as a practicable proposition will be quite trivial. If you have a wonderful inventor in Ireland who gets something substantial for the sale of an invention the money brought into the country by that sale and the good that will be done by his investing that money in Irish industry and enterprise, together with the productivity of the invention, would far outweigh any other consideration. I think the Minister should examine it between now and the Report Stage in that light.
Question put and agreed to.
SECTION 50.
Question proposed: "That Section 50 stand part of the Bill."
This is the question we were discussing earlier. It relates to patent rights sold before the operative date. Could the Minister explain the proviso to me? I do not quite follow it. The first part is clear. What exactly does the proviso mean?
It covers cases under Section 48.
That is, if you buy this year it comes into next year?
Yes.
Is the proviso meant to cover that case?
Yes.
Question put and agreed to.
SECTION 51.
Question proposed: "That Section 51 stand part of the Bill."
Would the Minister like to comment on this point? As far as I can see it, the expenses which a man undergoes in making an invention will not be allowed to him against the capital sum which he receives for the invention. An inventor may be working on an invention over a number of years. In doing so, he will have to incur an amount of expense, buying materials, etc. He may even hire assistants to work for him to bring his invention to fruition. As far as I can see these expenses will not be allowed.
Surely the provisions of Section 51 are additional in relation to the fees in subsection (1), etc.?
Subsection 2 provides for expenses for a person. An inventor would be included in that. He would be entitled to any expenses he incurred.
That is in connection with the grant.
Or maintenance.
Suppose an inventor is trying to invent a new type of motor car and builds a prototype and it fails this year. Arising out of that failure, he sees where he has made his mistake and builds another new type of motor car next year. It succeeds. He registers the patent for it and sells that patent. Is he not entitled to get not merely the expenses of his second motor car but also the expenses of his first motor car? I think he is. I certainly think he should.
I think Section 3 covers that.
That is what I thought, too.
Question put and agreed to.
SECTION 52.
Question proposed: "That Section 52 stand part of the Bill."
The increased income includes what is there in Section 49?
Yes.
Question put and agreed to.
Section 53 agreed to.
SECTION 54.
Question proposed: "That Section 54 stand part of the Bill."
Could the Minister tell me what is the difference between an allowance and a charge in this section?
The allowance is where the patent goes out of use.
The obsolescence allowance for example.
A charge is where the person might sell the patent and get more than he paid for it. Then there is a charge against the allowance already made.
Question put and agreed to.
SECTION 55.
Question proposed: "That Section 55 stand part of the Bill."
This is a matter which I mentioned before. I do not know if the Minister would consider any amendment of these provisions in view of all that has been said.
On the Bill as it is drafted, when a person dies the whole balance, if he dies a year after he has made his sale, becomes assessable. Is it clear that it is an assessment made after death but in respect of pre-death earnings and that the tax payable, such as it is, is allowable for death duty purposes?
I think so. This would be taken from the estate before death duty...
Where is that said?
I do not know.
In subsection (a) where it says: "No sums shall be charged under that section on that person for any year of assessment..."
It is the year of assessment in which the death occurs unless the death occurred on the 5th April. If the death occurred on Christmas Day, it could well be in the year of assessment.
The proviso mentions "income tax payable out of the estate." I think that covers it.
Could the Minister give me the line?
Line 53.
I see that, but——
"Income tax (including sur-tax) payable out of the estate." That covers it.
I do not think so. If a man who owns a business dies and the business is carried on for a period after his death by his executors for the benefit of his estate, for the benefit of the beneficiaries, then the executors pay the income tax out of his estate in respect of the post-death period of trade, but it is not a deduction for estate duty. I do not think the payment out of his estate would cover it. Would the Minister look into it between now and Report Stage? If it is clear that it must be in the year of the death but added to the last assesment prior to death, it would be all right.
If the Deputy would look at Section 55 1 (b), I think he will find that covers it. However, we shall look into it.
It says " the amount falling to be charged for the year of assessment." Is it clear that it is the amount falling to be charged on the deceased person and not on the executors? That is my point.
We shall examine it.
Question put and agreed to.
Sections 56 to 58, inclusive, agreed to.
SECTION 59.
Question proposed: "That Section 59 stand part of the Bill".
I suppose somebody more expert in income tax than I am understands Section 59. I do not and I am not ashamed to admit it.
Question put and agreed to.
SECTION 60.
Question proposed: "That Section 60 stand part of the Bill".
What about copy-hold interest? We have dealt with freeholds and leaseholds but we have not dealt with copyholds.
We shall have to look into that.
Question put and agreed to.
SECTION 61.
Question proposed: "That Section 61 stand part of the Bill".
Would Section 61 not cover the situation of artificial transactions in relation to Section 49 of which we were speaking already?
With regard to market value, it would.
This is to prevent tax avoidance artificially.
Perhaps it would. I do not know. It would not cover the profit on sale point.
Question put and agreed to.
Sections 62 and 63 agreed to.
SECTION 64.
Question proposed: "That Section 64 stand part of the Bill."
Are the exempted operations here for export trading?
All of the section deals with Shannon Airport.
But is there not therefore a similar section to Section 64 dealing with export trading? If we have an exemption for Shannon Airport, we should have a similar exemption for the allowances for export trading.
You have to go back to Section 40 for that.
But Section 64 deals with the whole of this Part of the Act, and Section 40 does not, surely? Surely Section 40 deals only with Part II, whereas Section 64 deals with Sections 23 to 68. Does Section 40 not deal only with Part II?
It deals with all wear and tear.
But only in relation to Part II, machinery and plant.
Yes, I think the Deputy is right.
As I understand it. Section 64 deals with Sections 23 to 68; Section 40 deals with Sections 32 to 44. Why would there not be something dealing with exports in relation to Sections 23 to 44 and Sections 45 to 68 in the same way as the Shannon Airport one? Can the Minister enlighten me or would he like to look it up?
I am afraid I cannot enlighten the Deputy.
Question put and agreed to.
Section 65 agreed to.
SECTION 66
Question proposed: "That Section 66 stand part of the Bill."
The definition of "lease" throws our minds back to the provisions we had before. It states here that "‘lease' includes an agreement for a lease where the term to be covered by the lease has begun, and any tenancy." What I am thinking of is not necessarily a tenancy at all. I think it is a statutory permissive right for the tenant of an expired lease to remain on the premises, pending consideration by the court of granting a new lease under the Landlord and Tenant Act, 1931. I do not think the definition there would cover the case which I made earlier in relation to Section 29. I think it was consent of the lessor. I do not think the word "tenancy" covers it altogether.
I promise the Deputy I shall look into it.
Question put and agreed to.
Section 67 agreed to.
SECTION 68
Question proposed: "That Section 68 stand part of the Bill."
This is a perfectly terrible section. I know nothing about corporation profits tax, unless Deputy Haughey does?
Not a thing. It should be abolished.
Question put and agreed to.
Section 69 agreed to.
SECTION 70.
I move amendment No. 6:—
To delete subsections (1) and (2) and substitute the following subsections:
(1) In the case of a company carrying on the trade of building or repairing ships, the following provisions shall apply for the purposes of relief from income tax and corporation profits tax under Part III of the Act:
(a) repairs carried out within the State to a ship shall be regarded as the manufacture within the State of goods and, to the extent to which any such repairs have been carried out within the State to a ship which is wholly owned by persons who are not ordinarily resident in the State, the ship shall be regarded as goods which are manufactured within the State and exported by the person who manufactures them and any amount receivable in payment for repairs carried out within the State to a ship shall be regarded as an amount receivable from the sale of goods;
(b) where, as respects any year of assessment or any accounting period, the company, by notice in writing given to the inspector of taxes within twelve months after the end of that year or period, so elects, the Act shall apply in the case of that year or period—
(i) as if all ships built by the company within the State had been exported by the company,
(ii) as if all ships to which repairs were carried out by the company within the State were, to the extent of such repairs, goods exported by the company, and
(iii) as if amounts receivable by the company in payment for the building within the State or of the repair within the State of ships were amounts receivable from the sale of goods exported by the company out of the State.
(2) In paragraphs (a) and (b) of subsection (1) of this section, any reference to repair or building, as well as including a reference to repair or building effected on or after the 6th day of April, 1959, also includes a reference to repair or building effected before that day.
Deputies know that, at the present time, ships that are built for export— built for a foreign order, as it were— are treated as if they were goods manufactured for export and, therefore, get the benefit of exemption from taxation on export profits. Now Section 70 adds to that repairs of foreign ships. Since that was drafted, however, representations have been made that ship builders and ship repairers here would be in the position, if it were passed in that way, that they could repair foreign ships cheaper than they could repair Irish ships, and you might have the anomaly of foreign ships coming here to be repaired and Irish ships going elsewhere to be repaired.
Having heard these various representations, I thought it better to include Irish ships also. It is a different matter from ordinary manufacturing business because if a ship is on the sea, it makes very little difference whether it puts into Cork or Dublin, or goes on to Liverpool to be repaired. For that reason, I thought there was a good case made to have the building of Irish ships and the repair of Irish ships included. The amendment is necessary to include Irish ships, both for building and repairing.
Amendment agreed to.
I move amendment No. 7:—
To delete subsection (4) and substitute the following subsection:—
(4) This section shall have effect—
(a) in relation to income tax, for any year of assessment beginning on or after the 6th day of April, 1959, and
(b) in relation to corporation profits tax, for any accounting period or part of an accounting period subsequent to the 5th day of April, 1959,
and, in the case of corporation profits tax, the Revenue Commissioners may, for the purposes of this section in relation to any such part of an accounting period, make such apportionments as may be appropriate.
The reason for this is the commencement provision. We want to substitute these new provisions for income tax from 6th day of April, 1959, and the corporation profits tax arrangements subsequent to 5th day of April, 1959. The subsection as it stands makes no provision for the apportionment in relation to corporation profits tax.
What this amounts to is that of the original section only the greeting card remains. Subsections (1) and (2) have gone. Now subsection (4) has gone and, therefore, there is only subsection (3) left and it deals with greeting cards.
No; there is more than that left.
Amendment No. 6 deleted subsections (1) and (2) and Amendment No. 7 now deletes subsection (4). Therefore, there is only subsection (3) left and it deals with greeting cards.
You are quite right.
Amendment agreed to.
Question proposed: "That Section 70, as amended, stand part of the Bill."
What is the analogy between a ship and a greeting card?
The greeting card, of course, is a different matter but it is added to the same list. That is all the difference it makes. Deputies will remember that in last year's Finance Bill we had book publishing as an export business. Before that, the books had to be printed and published here. We found that this business of publishing greeting cards is a fairly big one and deserves consideration the same as books.
Not even under the Income Tax Acts can a ship be deemed to be a greeting card.
Did the Minister notice a decision of the Supreme Court yesterday? I do not know if it is reported in this morning's papers, or was in yesterday's, but it was a decision by virtue of which a boat in Dún Laoghaire Harbour was deemed not to be in the State. Is there any likelihood of this matter arising under this section? In that case, there was a boat in the harbour in Dún Laoghaire. Somebody took the stopcocks out and the boat sank to the bottom. A claim was made against Dún Laoghaire Corporation and it was held, because the ship was in the water and not on the land, that it was not in Dún Laoghaire. It was moored to one of the bollards on the pier.
This section does not refer to salvage and repairs at sea— only in the docks.
But salvage in the harbour in Haulbowline, for example? As I understand it, they have a dry dock. Of course, a dry dock is part of the land and that question in relation to a dry dock does not arise at all. However, I understand there is also in relation to ship repairing yards what is the equivalent of a harbour; in other words, a place adjacent to their works where they can carry on minor repairs on the sea, because it is the sea that comes in. Is that now to be prohibited as a result of yesterday's decision that if ships are in a harbour here—whether it is a public harbour or private harbour, I do not think matters for the purposes of this section—and they are tied up to bollards, then there cannot be any work done on them under the provisions of this section? I do not think the Minister intended that and certainly nobody would wish it.
Question put and agreed to.
Section 71 agreed to.
SECTION 72.
Question proposed: "That Section 72 stand part of the Bill."
I should have thought that when the Minister was changing Section 19 of the Finance (Miscellaneous Provisions) Act, 1956, he would have taken the opportunity to admit the purchase price of the site of a factory. Seeing it is rather illogical to have other forms of expenditure on the construction of an industrial building, except the actual site on which a factory is erected, the purchase of the site could be brought within the section. The purchase of a site can be quite a substantial item. Would the Minister tell us whether he has actually considered that or would he be prepared to consider it now?
Under Section 72?
Yes. Under Section 72, you are admitting expenditure on preparing, cutting, tunnelling or levelling land.
Of course, the site does not depreciate. It is always there.
I do not quite understand that point. Why does the fact that it is always there affect it?
Well, if you buy a site, it does not depreciate, does it? It is not like a building.
The fact that a site is always there does not mean that the entrepreneur would not spend money on purchasing it. Surely this thing is concerned with expenditure on industrial buildings?
He is allowed for preparing the site, all right.
When the Minister took the opportunity of admitting the expenditure on preparing, cutting, tunnelling and levelling the land he might have gone the whole way and admitted the cost of the site.
Deputy Sweetman will be coming back to that point on mines, too.
I would not go quite so far as that.
Would the Minister explain to me exactly what the provision of subsection (3) is? In what circumstances would he envisage it coming into operation?
Subsection (3)?
Subsection (3) of Section 72?
I think there is nothing very sinister about it. It is just that levelling of land, when preparing it for a site for the installation of machines, would be allowed as an expense.
Yes, but the Section states that the cutting and levelling of land for the installation of machinery or plant will be treated as part of the industrial building. If it is not, if it is just tunnelling or levelling of land for the purpose of erecting the building, would it be?
Oh, yes.
But it does not say so.
Question put and agreed to.
Section 73 agreed to.
SECTION 74.
Question proposed: "That Section 74 stand part of the Bill."
This is just the counterpart of what was done in the British Budget so as to prevent marine insurance being taken away from this country and done in England to save stamp duty?
That is so.
Question put and agreed to.
SECTION 75.
I move amendment No. 8:—
Before section 75, but in Part VII, to insert the following new section:—
(1) Paragraph (b) of subsection (1) of section 19 of the Finance Act, 1952, is hereby amended by the substitution of the following subparagraphs for subparagraphs (i) to (v):—
(i) the transferor was entitled to the entire beneficial interest in the relevant property,
(ii) the entire beneficial interest in the relevant property became vested in the transferee,
(iii) at the time of the execution of the instrument the transferor and transferee were associated with each other to the extent that either was the beneficial owner of not less than ninety per cent. of the issued share capital of the other or that not less than ninety per cent. of the issued share capital of each of them was in the beneficial ownership of a third body corporate, and
(iv) the conveyance or transfer was not made in pursuance of or in connection with an arrangement whereunder either the consideration was to be provided directly or indirectly by a person other than a body corporate which at the time of the execution of the instrument was associated with either the transferor or the transferee to the extent described in subparagraph (iii) of this paragraph, or the beneficial interest in the relevant property was previously conveyed or transferred directly or indirectly by such a person as aforesaid.
(2) The reference to paragraph (b) of subsection (1) of section 19 of the Finance Act, 1952, in paragraph (a) of that subsection and the reference thereto in paragraph (a) of subsection (4) of that section shall each be construed as a reference to the said paragraph (b) as amended by subsection (1) of this section.
Under the present law stamp duty can be remitted where property passes between a company and its subsidiary but that does not apply where the property passes from the subsidiary to the parent company or passes between two subsidiaries under the same ownership. This section is to extend that benefit to traffic either way, either from the subsidiary to the parent company or between the two subsidiaries belonging to the one parent.
Amendment agreed to.
Section 75, as amended, agreed to.
SECTION 76.
Question proposed: "That Section 76 stand part of the Bill".
What is the exact reason for the limitation in Section 76 or rather for the limitation that was in the Finance Act of 1940?
There was a limitation of five years. A mine could apply for the benefit within five years. Now, of course, it is coming nearer the end of the five years.
No. I am talking of Section 76, not 77—the trustee savings bank. Why is there any limit at all?
It has always been regulated by law as the Deputy knows.
Yes, but I was wondering what the original purpose was. Surely that is a matter that should be regulated by the flow of the rate of interest from time to time?
I think probably it is regulated because the Exchequer gets the money and did always get it of course.
Is 3 per cent enough for a trustee savings bank in present circumstances?
Yes; they are satisfied to work on a half per cent margin.
Question put and agreed to.
Section 77 agreed to.
SECTION 78.
I move amendment No. 9:—
Before section 78 to insert the following new section:—
Section 6 (1) of the Finance Act, 1946, is hereby amended by the addition after the word "minerals" where it first occurs, of the words "or an open pit or open cast excavation made for the purpose of getting any of the minerals specified in the Schedule to the Finance (Profits of Certain Mines) (Temporary Relief from Taxation) Act, 1956".
This deals with mining. In Section 6 of the Finance Act, 1946, the word "mining" means an underground excavation made for the purpose of getting minerals. Roughly that means that, if you make a hole in the side of a mountain and disembowel the mountain, you get a mine development allowance but if you make a hole in the top of the mountain and excavate an open pit going downwards or if you excavate into the side of the mountain and remove the overburden as you go, then you are not entitled to a mine development allowance. I do not see the relevance of that in existing mining methods.
The open pit mine is, of course, a cheaper method of mining but there is usually associated with that type of development very heavy expense in the matter of road building, sometimes bridge building and certainly in regard to plant and equipment and compensation for surface ownership. There is all that type of expense added to the actual open cast mine cost. That seems to me to bring the limitation that there is in the Finance Act, 1946, into the present time and it seems far too narrow. As things stand, having regard to the narrow limitation, none of the development on road-building, bridge building, compensation for surface ownership or anything like that in open cast mines or in excavating from the top rather than from the bottom can be allowed as a write-off against future production. If you sank a shaft and did the work you would get that allowance but if, instead of doing that, you did it the other way round then you would not get the allowance. I do not think we should have in our legislation anything that would mean that the most profitable or the most productive way of dealing with our mining should not be encouraged. Anything in our legislation should not mean that a method which is not suitable for a particular mine would be forced upon the owner merely by reason of the fact that the mine development allowance cannot be allowed for another efficient type of working.
I am informed that there is one specific case where the mining of ore has been abandoned altogether as uneconomic because the mine development cost could not be recovered against production. We are all anxious to do what we can to ensure that there will be the greatest possible development of our minerals and, from that point of view as well as others, it is desirable that any method that is useful and efficient for mining should be given the concession. I think there was a difficulty in this respect in trying to differentiate between quarrying and mining and in the amendment which I have put down I have tried to meet that differentiation.
Will the Deputy take the four amendments together?
There are slightly different points in the other ones.
All right.
I have not got one of the Acts I want here, so I am saved by the bell for the other amendments.
Shall we take the four together tomorrow?
Yes, if the Minister wishes. We could easily finish them after Questions.
Progress reported; Committee to sit again.