I move that the Bill be now read a Second Time.
Deputies will recall that in my Budget Statement this year I announced that I proposed to recast extensively the legislation on the taxation of profits from dealing in or developing land which was originally enacted as Part VII of the Finance Act, 1965 and is now contained in Chapter VII of Part IV of the Income Tax Act, 1967. I also announced that I proposed to include my proposals in a Finance (Miscellaneous Provisions) Bill in the autumn. The recasting of the provisions of the 1965 legislation is the primary purpose of the present Bill. I therefore propose to discuss Part IV of the Bill, which contains my proposals for the replacement of the 1965 legislation, before going on to deal with the remaining provisions of the Bill, many of which are also of considerable importance.
There is no disagreement on the fundamental need for legislation which would charge to tax profits or gains from dealing in or developing land and the criticism of the existing legislation has been directed not at the principle on which it was based but rather at the fact that the tax liability operated over too large a field. The 1965 legislation imposed in the first instance a very wide charge and then excluded from that charge various cases in which relevant transactions could not be regarded as profit-making ventures of a trading nature. The main criticism of that legislation arose from the fact that the exemptions did not embrace all appropriate cases.
I decided at the outset that, instead of attempting to amend the existing provisions, a fresh start should be made. Part IV of the Bill represents an entirely new approach to the problem in that it confines liability to cases in which a business of dealing in or developing land is carried on instead of laying down a very wide charge, with exemptions, as the existing legislation does. The new provisions will be fully retrospective in so far as they give relief, but they will operate only as from the 6th April, 1968, in so far as they may impose any additional charge.
Before going on to discuss the provisions of Part IV in greater detail, I should mention that when the Bill was circulated I invited interested parties to make any representations they considered necessary, and that, in response to this invitation, memoranda have been submitted to me by a number of bodies and associations concerned with tax matters. I have considered the views of these organisations and I have arranged discussions on the points involved in a number of cases. Some of these points have been disposed of satisfactorily either in correspondence or in discussion, and I am considering the outstanding points with a view to introducing any necessary amendments at Committee Stage.
Part IV of the Bill comprises sections 15 to 22. Section 15, which contains a number of definitions and other provisions dealing with interpretation, closely resembles the corresponding section in the existing legislation.
Section 16, the new charging provision, is the main section of Part IV of the Bill. As I have said, it represents a new approach in that it confines liability to cases in which a business of dealing in or developing land is carried on. Broadly, the section provides that certain profits, not taxable under the general law, on disposals of interests in land are to be treated as trading profits and charged under Case I of Schedule D accordingly. The profits concerned are those which would be taxable under the general law, but for the circumstances that the interest disposed of was not the full interest held by the disponer or that he did not acquire his interest with a view to turning it over at a profit.
The modifications of the general law provided for in section 16 will apply only in cases in which dealing in or developing land is carried on in such a way as to constitute a business. The section does not attempt to define the expression "business of dealing in or developing land" but leaves it to bear its ordinary meaning.
Section 17 lays down the principles to be followed in computing the profits of a business of dealing in or developing land which is, or is deemed to be, a trade or part of a trade. Broadly, the treatment provided for is that acquisitions and disposals of interests in land are to be treated as purchases and sales of trading stock. Any consideration other than rent is to be brought in as a trading receipt. Rent is, of course, fully taxable under the general law.
Section 18 is designed to prevent a person chargeable on profits from dealing in land from avoiding liability by buying the land at an artificially high price or selling it at an artificially low price in cases where the transferor and the transferee are "connected" persons within the meaning of section 15 (3) and one of them does not carry on a trade of dealing in or developing land. Instead of the artificially high or low price, the section provides that for tax purposes the price will be deemed to be a price equal to the market value.
Section 19, which is an anti-avoidance measure, reproduces section 101 of the Income Tax Act, 1967 with modifications which confine its application to cases in which the profit arising on the type of sale with which it is concerned would be taxable under the earlier provisions of Part IV of the Bill. The section deals with a case in which a company formed to erect a building would, if it sold the building in the ordinary way, be chargeable on the resultant profit. If, however, effective control over the building were transferred to the prospective purchaser by the sale to him of the company's shares, the previous holders of those shares would, in the absence of special provision, be able to obtain their profit in non-taxable form. The broad purpose of the section is to secure that in such a case the consideration received by a previous shareholder will be taxable up to what would have been his share of the taxable profit which would have arisen to the company if it sold the building.
Section 20 is designed to apply the provisions of section 19 to cases in which another company, or companies, is interposed between a company which would be within section 19 and its ultimate proprietors. Where shares in such a holding company are sold to a person who wishes to acquire a building which a subsidiary has constructed, the seller of the shares in the holding company will be liable under section 19.
Section 21 contains miscellaneous provisions bearing on the interpretation of sections 19 and 20.
Section 22 provides that for the years 1965-66 and 1966-67, Part IV of the Bill will have effect in substitution for Part VII of the Finance Act, 1965 and that for 1967-68 and subsequent years it will apply in substitution for Chapter VII of Part IV of the Income Tax Act, 1967. This is subject, however, to the proviso that, for the years 1965-66, 1966-67 and 1967-68, the application of the new provisions is not to result in increased liability in any case.
I turn now to the other provisions of the Bill, most of which will make worthwhile changes in the law relating to income tax, sur-tax, corporation profits tax and stamp duties.
Part I of the Bill is concerned with Income Tax and contains a number of important provisions.
Sections 1 and 3 implement a recommendation in the Seventh Report of the Commission on Income Taxation to the effect that "the Special Commissioners should be an appellate body only, and that all their administrative functions should be transferred to the Revenue Commissioners, who should not then be ex-officio Special Commissioners". The Commission also considered that the title "Special Commissioners" was not an apt one and recommended the substitution of "Appeal Commissioners". This too is being done.
Section 2 will enable the Revenue Commissioners to delegate to an authorised officer the power to make certain assessments which is being transferred to them from the Special Commissioners by Section 3 of the Bill.
Section 4 deals with the time-limits within which income tax and sur-tax assessments and claims to repayment of such tax may be made. I need hardly remind the House that we devoted a considerable amount of time on the Committee and Report Stages of the Finance Bill, 1967 to this question of time limits. Since the Finance Bill debates, I have given a great deal of consideration to the matter and I have decided, in deference to the views expressed by Deputies on all sides of the House, to provide in this Bill, for the implementation of the recommendations of the Commission on Income Taxation on this question of time-limits for making assessments. Section 4 of the Bill will introduce a new time-limit of ten years within which income tax and sur-tax assessments may be made but this is subject to two qualifications: first, that in a case involving fraud or neglect (which is defined), assessments may be made at any time, and second, that except where there is fraud or neglect, assessments may not be made for a year earlier than 1961-62.
Section 4 also extends to ten years the time-limit for making claims for repayment of income tax and sur-tax subject to the condition that this will not apply to tax for any year earlier than 1961-62. This condition, which is in line with the provision regarding assessments, will ensure that years which are now closed cannot be reopened.
Section 5 creates an obligation on persons who are chargeable to income tax and who have not been served with return forms, to give notice of their chargeability. A similar obligation already applies to persons chargeable to sur-tax and companies chargeable to corporation profits tax.
Section 6 repeals a number of sections in Part VIII of the Income Tax Act, 1967 which are concerned with the machinery for issuing and obtaining returns and other information necessary for the purpose of income tax assessments. The provisions in question no longer serve any useful purpose and some of them could possibly be a source of difficulty. Subsections (2) to (7) provide for amendments which are consequential on the repeal of section 167 of the Income Tax Act, 1967.
Section 7 provides a new relief, retrospective to the commencement of Part IX of the Finance Act, 1963, which concerned the taxation of income from rents out of lands and buildings. The section, which will be of limited application, is designed to secure the allowance of relief by way of carry forward in respect of interest on borrowed money employed in the purchase, improvement or repair of the premises where the taxpayer's circumstances are such that effective relief cannot be granted in the year of assessment.
Section 8 corrects a minor drafting error. Section 9 exempts from Irish tax, with effect from 1967-68, retirement pensions and annuities payable under the United States Social Security Act or the United States Railroad Retirement Act. As things stand, these retirement benefits are not chargeable to tax in the United States and it has been represented that the fact that they are liable to tax in this country is not alone unjust but is also a serious disincentive to persons of Irish origin and other who now reside in the United States from coming to live in this country on their retirement.
Part II of the Bill, which deals with Stamp Duties, contains three sections, all of which are designed to reduce the duties on certain kinds of instruments.
Section 10 is designed to bring the duty on a life insurance policy for a period not exceeding two years into line with that charged on a policy of insurance against accident, by substituting a duty of sixpence for the present ad valorem charge of ten shillings per £1,000 of the capital sum insured.
The purpose of Section 11 is to reduce the cost of equipment-leasing schemes by limiting the charge of Stamp Duty on agreements for the hire of goods, wares, merchandise, plant and machinery to the fixed duties which now apply in the case of hire-purchase and credit-sale agreements. Instead of the existing rate of 2s. 6d. for every £5 of the periodical payment, the new fixed rates will be 6d for an agreement under hand and ten shillings for an agreement under seal. The section also exempts from the greater charge guarantees of sums payable under agreements for hire.
Section 12 is designed to reduce the heavy Stamp Duty which would, under existing law, be charged on a foreign issue of bearer bonds. Instead of the present rates which run as high as £2 per cent, duty will, under this section, be charged at the rate of 2s 6d per cent in the case of a foreign issue of bearer bonds made by a concern within the State and expressed in the currency of a country outside the sterling area.
Section 13 provides time-limits for corporation profits tax assessments corresponding to those provided for income tax and sur-tax assessments by section 4. Section 14 and Part V of the Schedule provide that the appellate functions exercised by the Special Commissioners in relation to corporation profits tax will be transferred to the Appeal Commissioners.
I now come to Part V of the Bill. Section 23 provides that references to the Special Commissioners in the enactments relating to turnover tax are to be construed as references to the Appeal Commissioners. The provisions of the turnover tax enactments containing such references apply also, as appropriate, to wholesale tax. Section 24 amends section 27 (3) of the Civil Service Commissioners Act, 1956, so as to secure that it will apply to persons appointed as Appeal Commissioners as it has hitherto applied to persons appointed as Special Commissioners.
Section 25 is designed to remove a doubt as to whether the Collector General is a creditor within the meaning of the Bankruptcy Acts so as to enable him to take proceedings in bankruptcy in his own name.
Section 26 provides superannuation terms for established Appeal Commissioners who are not established civil servants before appointment as Appeal or Special Commissioners. As Deputies will be aware, it has been a long standing practice to appoint one of the Special Commissioners from outside the Civil Service. The person appointed has usually been a barrister of standing and, because of the relatively late age at which such a person is appointed, the superannuation position can give rise to difficulties. It is essential, of course, that if persons of the required calibre are to be attracted, special superannuation terms should be offered. Since the post of Appeal Commissioner is a quasi-judicial one, it is reasonable to apply to it superannuation terms in line with those enjoyed by district justices and county registrars instead of the normal Civil Service terms.
Section 27 contains the usual provisions on short title and construction.
I think that, in principle, the provisions contained in this Bill will be welcomed by Deputies on all sides of the House. It contains little if anything of a disagreeable nature. Some of its provisions are necessarily complex but I will be glad to give any explanation which may be called for at the Committee Stage.
I now ask the House to give the Bill a Second Reading.