I move:
That provision be made in the Act giving effect to this Resolution for imposing charges to income tax and corporation profits tax in relation to rents and certain other payments under leases granted after the 15th day of January, 1975, by amending the law as contained in Chapter VI of Part IV of the Income Tax Act, 1967 (No. 6 of 1967), with respect to—
(a) the ascertainment of the duration of and premiums for such leases; and
(b) the treatment as rent of certain payments by instalments under such leases.
This resolution is the forerunner of legislation to be included in the Finance Bill to prevent the deferral of tax by the inclusion of special provisions in leases for this purpose.
Legislation aimed at securing the adequate taxation of income arising from all let property in the State was included in the Finance Act, 1963, and that legislation, as amended in 1965, is now contained in Chapter VI of Part IV of the Income Tax Act, 1967. The broad scheme of the legislation is that rents under leases for a term not exceeding fifty years—short leases—are chargeable under Schedule D on the profit rent arising under the lease.
With the intention of preventing tax avoidance by dressing up leases— which were really for terms not exceeding fifty years—as ones for terms exceeding fifty years the legislation included rules for the determination of the duration of leases. Likewise provisions were included aimed at preventing avoidance of tax on rental income by the device of granting leases wholly or partly in consideration of a premium. In such cases tax was chargeable on the whole of or a portion of the premium. At the same time, provision was made for the spreading of the tax charge on premiums over a number of years depending upon the terms of the lease.
A scheme has been evolved to take undue advantage of these provisions by the leasing of premises from a subsidiary company to a parent company so that a large premium becomes immediately deductable for tax purposes, because the terms of the lease are such as to make it possible to terminate it on one month's notice; while the same premium, because it is expressed to be payable in instalments over a period of perhaps 40 years, is chargeable to tax in the hands of the other company over a long period of years by reference to the instalments paid.
The legislation to be included in the Finance Bill will close this loophole and will apply to leases granted after 15th January. The legislation will also prevent the carry-forward to 1975-76 and subsequent years of any "loss" caused by the deduction of a large premium in such cases under the previous rules.
