Dáil Éireann díospóireacht -
Wednesday, 16 Jul 1975

Vol. 283 No. 10

Wealth Tax Bill, 1975: Committee Stage (Resumed).

Mr. Colley

I move amendment No. 20b.

In page 14, subsection 3 (b), line 2, to delete "80 per cent of".

The part of the section affected by this amendment proposes to allow deductions of debts and encumbrances arising in connection with the kind of businesses that are affected by this part of the section but to restrict the amount which may be deducted to 80 per cent of the total amount of the debts and encumbrances. This amendment seeks to do away with the 80 per cent and to provide that all debts and encumbrances may be forgotten. Why restrict the deduction of genuine debts at all? It should be clearly remembered that we are dealing here with productive assets on which jobs and growth depend. Just because in the case of these assets some concession, in this case, a 20 per cent reduction in valuation, is given in regard to the valuation of the assets is not, I would submit, any good reason for restricting the deduction of debts. As I suggested in another context earlier, in effect this restriction on the deduction of debts is trying to take back with one hand what is being given with the other. There should not be wealth tax on productive assets on which everybody's future depends. But, if we must have it let us at least give the most generous possible treatment to productive assets. One way of assisting in giving generous treatment to productive assets, which are so important to all of us, is not to restrict the deduction of debts and encumbrances which may be made. That is what this amendment seeks to do, to take away any restrictions and to allow all genuine debts and encumbrances to be deducted.

Mr. T.J. Fitzpatrick

(Cavan): I understand that for all practical purposes this amendment was argued on the earlier amendments 18 (b) and 18 (c). The effect of the amendment is to seek to allow 100 per cent debts against a property which is only valued at 80 per cent of its value for tax purposes. The amendment is not acceptable and I regret that I must oppose it. It is illogical, in the first instance, because we are only valuing the property concerned at 80 per cent of its value. It would not be logical, therefore, to grant debts of 100 per cent as against that property. If it were logical to do that it would be equally logical to allow debts in respect of property which was wholly exempt. That has not been sought. We have provided in the Bill that where a person incurs an overdraft of £X,000 for the purpose of providing himself with a private residence that that overdraft will not be allowed as a debt, the logic behind that being that his private residence is not an asset for the purpose of the wealth tax and was not taxable. We say that it would be therefore illogical to allow that debt to be taken into account against the rest of his wealth. That, in another way, is what this amendment proposes to do.

I can tell Deputy Colley that the attention of my advisers was drawn to this by outsiders, by people who are making representations in general. They pointed out that unless we dealt with this as we proposed to do we would be opening the way to avoidance.

Mr. T.J. Fitzpatrick

(Dublin Central): I support Deputy Colley's amendment for one particular reason. The Minister has already stated that the property is valued at 80 per cent. A certain type of property, such as a hotel, may have considerable debts. The particular type of debts that I am talking about are not just sundry debts. I am talking about builders' suppliers who give substantial credit to a hotelier to expand his business. This can be very expensive. Surely this type of debt should be taken into consideration when we are discussing this section? These are credits which may have been given over 12 months and be repayable over three or four years. This is the type of credit one can get when one is operating on this scale. Would the Minister not agree that in that type of situation a hotelier would be entitled to the 100 per cent claim on the debt? There can also be debts for household supplies, timber or concrete or various other things. These should be allowed the 100 per cent. The Minister is allowing only 80 per cent in that type of case. Perhaps I am wrong on this; if so perhaps I can be put right.

Mr. T.J. Fitzpatrick

(Cavan): I am only allowing 80 per cent there.

Mr. T.J. Fitzpatrick

(Dublin Central): Why?

Mr. T.J. Fitzpatrick

(Cavan): I am only allowing 80 per cent of the debts due in respect of property or against the property where I am only taxing 80 per cent of the value of the property. That is logical.

Mr. T.J. Fitzpatrick

(Dublin Central): That is the concession the Minister is giving to this type of property. There is no concession at all there. The Minister is giving only 80 per cent valuation and he is taking it away here in the debts.

Mr. T.J. Fitzpatrick

(Cavan): There may be no debts due at all.

Mr. T.J. Fitzpatrick

(Dublin Central): This is the unfairness of the section. If there are no debts due and if there is the position that a man has sufficient wealth to build his hotel this will mitigate against the man who cannot afford to pay for the goods which I have in mind. He is going to benefit as regards the valuation. He will get a real reduction because he is only being valued at 80 per cent. But the person who has to go into a builders' supplier and get 50 per cent of his materials and goods on credit, will carry these debts with him on valuation day. The Minister is going to say to that man: “Although I know you owe this money I am allowing you only 80 per cent of that debt.”

Mr. T.J. Fitzpatrick

(Cavan): We are back now to the argument we had the other day about the superannuation fund, and it is not logical.

Mr. T.J. Fitzpatrick

(Dublin Central): It is very logical to me and to many other people.

Mr. T.J. Fitzpatrick

(Cavan): Presumably if the man pays cash to the builders' providers he took that cash out of the bank or from whereever he had it; if he did not take it off deposit he would be paying wealth tax on it.

Mr. T.J. Fitzpatrick

(Dublin Central): The Minister can rest assured there are certain penalties imposed by suppliers for extensive credit. The man in the situation visualised by me is being penalised for obtaining credit. It is quite obvious that the man who has the funds at hand—these can be substantial; they are not trivial matters at all; they can run into £20,000 or £30,000, especially where a big hotel is being built. It is unfair to penalise this particular person by not allowing him 100 per cent for this type of development. At the same time, if the man has the money in capital, he is certainly benefiting by the Minister's section. There is a lot of sense in Deputy Colley's amendment, and it should be looked at very closely.

Major de Valera

I am afraid we have in the Minister's statement of his opposition to this amendment a typical bit of administrative thinking without adequate consideration of what the realities of the situation are likely to be, as Deputy Fitzpatrick said. I say administrative thinking because it is the type of administrative logic that can lead to absurdity. I will tell the Minister why I make a statement like that. The statements I just made are not ones to be made unless there are good grounds for making them. I hope there are good grounds for my making this one.

First of all, let me take the Minister's false analogy with a residence. In the case of a residence, that is completely free of tax. It is the same as the acquisition of any other asset. Where an asset is being acquired with a benefit I quite agree with the Minister that to give an exemption of the debt acquired in purchasing would not be in the same category because what you are exempting is the asset once acquired, in the hands of the person, and if they were to acquire such an asset they can acquire it by purchase. I agree that it would be going too far to attempt to exempt the purchase price of that, although from another point of view the case could be made, but for the purpose of my argument I will admit the Minister's point there. That is a completely different matter. Here we have a case of a property the value of which is going to be adjusted by deduction of 20 per cent of the market value. If it is a productive asset of a certain sort, which is used directly in the provision of employment, is the phrase used in the section, that by itself, if there was a simple asset that is giving employment and is used directly in the giving of employment, and the amendment stops there, that is a benefit.

Now let us look at the practical case. In most cases there will be debts. In very many cases if the value of the asset is reduced by 20 per cent and the value of the debts are reduced by 20 per cent at the same time you are robbing Peter to pay Paul, or you are taking away with your left hand what you are giving with your right hand. To say the least, it is a notional administrative transaction in practical terms.

Incidentially, in a case of debts and encumbrances outstanding at the valuation date, I can understand encumbrances, but where you have the property which is used directly in the provision of employment, the exact meaning of "debts" might lead us to some interesting points of distinction. That is bad enough. In other words, we have a section here which apparently confers a benefit but which in the most practical cases—and remember in most practical cases where employment is concerned there will be debts—we are very likely taking away with B what you give with A.

As Deputy Fitzpatrick pointed out, the situation is worse than that. This is a rather important consideration if the Minister's avowed purpose here is to provide employment. Another administrative error is that nothing stands still or is cast in business. You either go forward or backward, as a general rule. There is no such thing as saying: "I am nicely placed. I have a static business and everything is happy." That is an error that the staff mind, whether it is in an army, or in an administration, or in a big company, or anywhere else, can make.

In the case of an enterprise coming within the terms of this subsection and providing employment, it is probable that the impetus of business will require continued investment to secure expansion, to safeguard employment, and to secure viability by development. I doubt if you would have any difficulty—I could give a large number of individual examples if I were asked— with businesses which have been faced more than once with the alternative of dying either quickly or slowly, or taking their courage in their hands and developing. It is like an aeroplane taking off in difficulties. To avoid a crash the pilot, instead of doing what the cautious motorist can do—pull up and go in to the kerb—has got to put on more power and put in everything he has got to get airborne and get into a safe area. It is the same in business. You must invest, you must develop.

If you concede that practical consideration, which I submit to any businessman is a very real one, then you must concede that that development requires financing. The conventional way of financing is borrowing in some form or another, and borrowing means debt. It can frequently happen in the type of enterprise envisaged in this subsection that the actual initial assets, that is the property, involved and the net market value of the property which is used—I will not complicate it by expanding the argument to the stocks and shares—may be quite small in relation to the debt incurred. It would not be unusual for a business with, say, a property evaluated at £½ million to have a debt of the order of £¾ million. The point is that the debts could be greater than the actual property.

If that is the case, we come to the kernel of Deputy Fitzpatrick's argument, namely, that you give 20 per cent benefit on the lesser, and only allowing 80 per cent on the greater means that you have more debts unallowed for than you have value allowed for. That is an important point in considering the particular enterprises here. It is facing reality. It is a totally different situation from the case where a person buys a residence. Appeals to formal logic, arithmetical or administrative logic, in this case is not the answer. The amendment would correct this.

In final answer to the Minister's point about administrative logic, if you want to help productive assets, if you want to make an exception and you are making an exception here—I am giving full credit to the Minister for his good intentions—why not give the 20 per cent? It will be very easy to check on the debt. There will be no evasion in the debt. By giving the 20 per cent you are actually doing the reverse of what you are doing here. Instead of creating difficulty where there is expansion and development, you will encourage expansion and development. This is one of the things we have been urging from this side of the House. I would very strongly ask the Minister to consider the amendment in that way.

Mr. T.J. Fitzpatrick

(Dublin Central): Could the Minister clarify one point? When he speaks of debts he includes all financial lendings from financial institutions?

Mr. T.J. Fitzpatrick

(Cavan): Yes, if properly imposed. I wonder are we at cross purposes here, because we are giving the full amount of the debt. We are deducting it and then we are in effect valuing the property at 80 per cent of its net value. Take a hotel valued at £100,000 and there are debts due against that hotel of £80,000 left. Then there is a relief of 20 per cent of the £80,000, £16,000.

Mr. Colley

That is the reverse of what is in the section.

Mr. T.J. Fitzpatrick

(Cavan): It is not. That is the effect.

Mr. Colley

Maybe the result is the same.

Mr. T.J. Fitzpatrick

(Cavan): Let me say that whatever else I may be I am not a mathematician. Just bear with me until I get this across. You have the hotel valued at £100,000, you take debts, £20,000, that gives you the net value of the hotel at £80,000. Then you take off relief of £16,000 and you get £64,000. Then go on to the other approach where you have again a hotel valued at £100,000, you deduct your 20 per cent, and you get £80,000. You go to the debts and you have still £20,000 worth of debts but you take 20 per cent of them and you get debts down to £16,000 and you deduct your £16,000 from your £80,000 and you again get £64,000.

Major de Valera

Say the latter part again.

Mr. T.J. Fitzpatrick

(Cavan): All of it Deputy or——?

Major de Valera

The latter part of it.

Mr. T.J. Fitzpatrick

(Cavan): You have £20,000 worth of debts. You reduce them here to 80 per cent by taking off £4,000, that is, £16,000.

Major de Valera

That gives you £16,000?

Mr. T.J. Fitzpatrick

(Cavan): Yes. You deduct the £16,000 from the £80,000. You get £64,000 as you did in the first instance.

Major de Valera

That is the Minister's interpretation.

Mr. T.J. Fitzpatrick

(Cavan): That is the correct interpretation. It is much ado about nothing.

Mr. T.J. Fitzpatrick

(Dublin Central): Before we go any further——

Major de Valera

Let the Minister make his point.

Mr. T.J. Fitzpatrick

(Cavan): I am saying you take 80 per cent of the net value of the property. Get back to my first instance where you have the hotel valued—I assume Deputies will accept this as being fair if this is what we are doing—at £100,000 and there are allowable debts owed by the owner of £20,000.

Mr. T.J. Fitzpatrick

(Dublin Central): The full amount of that is not allowed.

Mr. T.J. Fitzpatrick

(Cavan): It is in the example.

Major de Valera

Let us get what the Minister is saying on the record first. Say it again.

Mr. T.J. Fitzpatrick

(Cavan): You have the hotel valued £100,000 and £20,000 debts: deduct that from the £100,000 and you get £80,000.

Major de Valera

That is not what you said the first time. What you said you took the——

Mr. T.J. Fitzpatrick

(Cavan): It is. The record will show.

Mr. Colley

The Minister is taking it both ways and he is saying it comes out the same.

Mr. T.J. Fitzpatrick

(Cavan): I am getting the same answer. You have a hotel valued £100,000, debts £20,000 deducted, net value of the hotel £80,000, less 20 per cent relief, £16,000, value for tax, £64,000. Have we all got that?

Mr. T.J. Fitzpatrick

(Dublin Central): It is not right.

Major de Valera

Off that £80,000 you are taking what?

Mr. T.J. Fitzpatrick

(Cavan): I am taking 20 per cent.

Major de Valera

You are taking 20 per cent off the £80,000. That is £16,000.

Mr. T.J. Fitzpatrick

(Cavan): And getting £64,000. If you like we can follow it on and do it the other way. This is the system laid out in the Act. You have the gross value of the hotel, £100,000. In this case we will deduct the 20 per cent allowed and we get £80,000. We have debts amounting to £20,000. We will reduce them by 20 per cent and our debts will be thus reduced to £16,000, and we will deduct the £16,000 from the net value of the hotel which was £80,000 and we will again end up with £64,000.

I understand the Minister for Finance gave an example last night in regard to land which showed that a borrowing operation could eliminate a liability for £300 tax altogether by allowing the full debts against the property. I am advised and, indeed, experts who have made representations to us know, that if we were to carry that into stocks and shares we could have wholesale trafficking in stocks and shares as against borrowing, which would end up with evasion of tax, just as a few years ago people borrowed wholesale to buy houses when the full amount of the interest was allowed against income tax, and they ended up by paying no income tax and enjoying capital gains at the same time.

Major de Valera

Let us start off with £100,000. Apply paragraph (a). That leaves you with £80,000. Is that not right? That is the value of £80,000?

Mr. T.J. Fitzpatrick

(Cavan): Correct.

Major de Valera

That is the Minister's second example.

Mr. T.J. Fitzpatrick

(Cavan): That is my second example.

Major de Valera

If you take the next one. Supposing you have £30,000 worth of debt, you will have——

Mr. T.J. Fitzpatrick

(Cavan): Take my £20,000 worth of debts.

Major de Valera

No. £30,000 debts. That is £24,000.

Mr. T.J. Fitzpatrick

(Cavan): Stick to mine.

Major de Valera

That is £24,000. Eight times 30, 80 per cent of £30,000 is £24,000.

Mr. T.J. Fitzpatrick

(Cavan): I accept that.

Major de Valera

Take £24,000 off instead of £20,000 and you have then the figure £56,000 instead of £64,000.

Mr. T.J. Fitzpatrick

(Cavan): You have more debts.

Major de Valera

Of course you have more debts. If the Minister does not mind my saying so, it is very unfair to the House to represent that the two calculations were the same and I take strong exception to it. The Minister represented that the two calculations were the same. They are not, with the same figure.

Mr. T.J. Fitzpatrick

(Cavan): Do not get cross.

Major de Valera

That was the implication, and I take strong objection to it. We could have fallen for it.

Mr. T.J. Fitzpatrick

(Cavan): I invite Deputy de Valera to do the first calculation please.

Major de Valera

I agree the first calculation is right.

Mr. T.J. Fitzpatrick

(Cavan): The Deputy is getting annoyed about nothing because if the Deputy takes £100,000——

Major de Valera

And £20,000.

Mr. T.J. Fitzpatrick

(Cavan): Please let me speak. I invite Deputy de Valera, who is much better at mathematics than I am, to go back now, still value his hotel for £100,000, deduct £30,000 worth of debts and see what he gets. He will get £70,000 and then deduct 20 per cent of £70,000 and see what he gets. He will get the same figures he got before. I do not like to be accused of deliberatly trotting out misleading figures.

Major de Valera

What I am objecting to is that specific examples are being invoked to give a general impression that the calculation was the same done both ways.

Mr. T.J. Fitzpatrick

(Cavan): If the Deputy checks he will find I am correct.

Major de Valera

I am asking where I am wrong in this interpretation. Under paragraph (a) if I take £100,000 and take 20 per cent off——

Mr. T.J. Fitzpatrick

(Cavan): All we have to do is to substitute £30,000 for debts in both cases instead of the £20,000.

Major de Valera

Under paragraph (a), as I make it out, if we take out the £20,000 off that for £30,000 debts we will have a reduction of £56,000. Is that correct? If that is right I freely take back what I said and apologise.

Mr. T.J. Fitzpatrick

(Cavan): I will go through it again. One has a hotel worth £100,000—this is example one—debts £30,000, net £70,000, less 20 per cent of £70,000 which is £14,000, giving a net £56,000.

Major de Valera

Would the Minister say it again?

Mr. T.J. Fitzpatrick

(Cavan): I will say it slowly. A hotel worth £100,000, debts £30,000, net £70,000. Then take 20 per cent of £70,000 which is £14,000, giving a net of £56,000. The second one is in accordance with the Bill. Hotel, gross, £100,000, take 20 per cent discount or reduction leaves £80,000. There is still £30,000 of a debt and we will also take 20 per cent of those which is £6,000, leaving £24,000. Deduct £24,000 from £80,000 and that leaves £56,000. Before Deputy Fitzpatrick comes in all I want to establish is that I did not deliberately manipulate the figures so as to present an untrue picture.

Major de Valera

I accept that and I retract what I said.

Mr. T.J. Fitzpatrick

(Cavan): And I accept that the Deputy jumped to conclusion without checking.

Mr. T.J. Fitzpatrick

(Dublin Central): The Minister is taking a 20 per cent reduction from two different figures. In the first one he has taken a 20 per cent reduction on £80,000 and in his second example he has taken the 20 per cent reduction from £100,000 and then deduct the debts. He is juggling these around to try and get the same result.

Mr. T.J. Fitzpatrick

(Cavan): There is no juggling in it and there is no use in saying that. There is no juggling at all.

Mr. Colley

What the Minister is saying is that mathematically it comes out the same.

Mr. T.J. Fitzpatrick

(Cavan): I am in effect deducting the debts and taking 80 per cent of the net value and that is in ordinary countryman's language, stripped of mathematics or anything else. I am deducting the debts from the value of the hotel and then taking 80 per cent of the net value. That is simple.

Mr. T.J. Fitzpatrick

(Dublin Central): The Minister is not taking 80 per cent of the net value in his first example. He has taken 50 per cent of the £100,000 to come to the decision.

Mr. T.J. Fitzpatrick

(Cavan): I am not.

Mr. T.J. Fitzpatrick

(Dublin Central): He is in the second example.

Mr. T.J. Fitzpatrick

(Cavan): Go back to the first one then. I am taking £100,000 and taking discount off that, in accordance with paragraph (a), and deducting 20 per cent as deducted there. Then I am taking my £20,000 debts and I am taking 20 per cent of that off. I am getting £16,000 and I am deducting that from £80,000 and I end up with £64,000. What I am telling Deputy Fitzpatrick is that that is the same thing as deducting the full £20,000 worth of debts from the £100,000 value of the hotel and giving a reduction of 20 per cent of the balance. I have proved it mathematically.

Mr. Colley

Could I ask the Minister now, whatever about the figures and the formula, to put into words the point he is trying to establish with these two figures.

Mr. T.J. Fitzpatrick

(Cavan): In one sentence, I am taxing 80 per cent of the net value of the asset.

Mr. T.J. Fitzpatrick

(Dublin Central): And he is only allowing 80 per cent of the debt?

Mr. T.J. Fitzpatrick

(Cavan): I am taxing 80 per cent of the net value of the asset.

Major de Valera

What the Minister is saying is that he is taking the net value of the asset. Why is that not provided for in the Bill, generally? However, he is taking the net value by subtracting the debt and he is making allowance for 80 per cent. That is his case now.

Mr. T.J. Fitzpatrick

(Cavan): Yes, and that is what the section says.

Mr. Colley

Is the Minister saying that if he accepted my amendment it would make no difference? Because if he is not saying that what is the point of all this?

Mr. T.J. Fitzpatrick

(Cavan): I have spelled out what I am doing. I will go further and say that is what the Deputy wants me to do. If the Deputy does not want me to do that I would like him to tell me what he wants me to do.

Mr. Colley

Is the Minister saying that if he accepted this amendment it would make no difference?

Mr. T.J. Fitzpatrick

(Cavan): It would make a big difference and would end up with a situation that even consultants would not say is reasonable.

Mr. Colley

What is the point of all this giving the alternative approaches that the Minister says produce the same result? Whatever relevance it has it is not relevant to acceptance of this amendment.

Mr. T.J. Fitzpatrick

(Cavan): It is showing that I am only taxing on 80 per cent of the net value of the hotel after deducting the debt.

Mr. Colley

What is the point of making that statement? The amendment is seeking to allow a deduction of 100 per cent of the debts from 80 per cent of the value. Is not that what the purpose of the amendment is? It may be an interesting mathematical exercise to show what the Minister has shown, but what relevance has it to this amendment?

Mr. T.J. Fitzpatrick

(Cavan): I was asked to explain how this thing works and I have done so effectively. I have also told the House that if I were to do anything else I would be inviting people to finance purchases of stocks and shares and everything else in a way that would unjustly get themselves out of wealth tax. If the wealthy people could afford the bother to buy they would get away whereas the ordinary genuine owner of property and wealth would not get away.

Mr. Colley

Is the difficulty there the inclusion of the stocks and shares in this paragraph?

Mr. T.J. Fitzpatrick

(Cavan): No, it would be the one value for everything.

Mr. Colley

Would what the Minister says—I am not questioning him at the moment as to how this would arise, the evasion he is talking about —mean that evasion would arise in regard to property other than stocks and shares?

Mr. T.J. Fitzpatrick

(Cavan): It would, yes.

Mr. Colley

Could the Minister give us a simple example of how it would happen in regard to property other than stocks and shares?

Mr. T.J. Fitzpatrick

(Cavan): Last night an example was given by the Minister for Finance. We will say A owns land worth £100,000 and he has other assets of £80,000. His total wealth is £180,000. The value of the land for tax is £50,000 and the other assets are £80,000. He has, therefore, a total of £130,000 and his wealth tax should come to £300. Assume that he borrowed £100,000 to buy land worth £100,000, the lands and borrowings cancel each other out so that in equity he should still pay the same amount of tax as his net assets are unchanged at £180,000. However, the position would be as follows if the full debt were allowed: the value of the land for tax, £100,000; other assets, £80,000, equals £180,000, less entire debt, £100,000; net value £80,000, no tax.

Mr. Colley

That is a consequence of the threshold at a particular figure. That does not affect the principle involved.

Mr. T.J. Fitzpatrick

(Cavan): Assessment under the Bill, the value for taxable land £100,000; other assets £80,000; £180,000 less 50 per cent of the debt, £50,000, total £130,000.

Mr. Colley

Why 50 per cent of the debt?

Mr. T.J. Fitzpatrick

(Cavan): Because part of that is land and he is entitled to 50 per cent. We dealt with that under another subsection. It is the same principle. There is 80 per cent here but it is only 50 per cent there. We would only be allowing against land 50 per cent of the debt on the same principle as we are only allowing 80 per cent here. Less 50 per cent of the debt, £50,000, total, £130,000, and the wealth tax is £300 which is correct. If we were to do what Deputy Colley suggests the man who could afford to manipulate things so that he would borrow and have debts as against wealth tax on the relevant date would get off tax whereas the ordinary honest-to-God man who could not arrange things in that way would have to pay wealth tax.

Major de Valera

That gets back to the two fundamental points raised earlier. Forget for the moment my error in regard to the calculation. Not appreciating the fact that the 80 was equal to 100 minus 20 which is, fundamentally, the mistake that was made there. Leaving that out the point still arises that in absolute terms 20 per cent relief on the property—if one does the calculation as it is done in the section—and 80 per cent relief on the debt, if the debts exceed the property or are very substantial then one has the consequence as I outlined earlier. Why not go the whole hog and give the benefit on the asset? It would be the net asset. One can work out the calculation for that.

The Minister talks about tax evasion. Surely that can be controlled as it is under the Income Tax Acts. Tax evasion is no answer, and in a developing business the arguments made earlier are still valid. If that is done there would be a great deal to be said for what the Minister is doing in this section and it would amount to a real relief. If one takes in any proportion of the debt, no matter how big or how small, one is giving an incentive and reducing the net amount of the assets by 20 per cent. The debt is subtracted in toto from the 80 per cent of the assets. The 80 and the 20 depend essentially on the fact that 80 is equal to 100 minus 20. In the case of making that 80 up to 100 and taking the actual legal application of the interpretation of the section, without going to any alternative methods of calculation, one would confer a great benefit on businesses which are developing and forced to develop and have an employment content. That part of the argument stands as strong as ever, and the tax evasion has been answered in similar cases in the income tax code.

Mr. Colley

I want to reinforce what Deputy de Valera has said. As far as I can see the only argument the Minister has put forward against doing what is sought in this amendment is that it would lead to tax evasion. If one takes the example he gave, the non-liability for tax in that example is a function of the level at which the threshold is fixed and the value of the properties that the Minister chose as an example. One would not, of course, get that kind of result if the value of the property were different or if the thresholds were different. The mere fact that by choosing this particular combination of figures you get a result of the kind the Minister mentioned is no answer at all to saying that people engaged in business in so far as their productive assets are concerned should not be allowed to deduct the full amount of the debts simply because one is giving a concession in regard to the valuation by reducing it to 80 per cent.

It has been demonstrated from this side of the House that this kind of concession could be very important and failure to give it effectively is taking, if not all back, very much back of what is given. This question of evasion which is alleged to arise is just a function of the particular figures chosen and the level of the threshold. It would not be true to say that it would provide a coach and four for people to avoid liability for wealth tax. That would not be true at all. Failure to accept the amendment will certainly lead to very minor relief in the case of productive assets coming under this subsection.

Mr. T.J. Fitzpatrick

(Cavan): I have shown clearly that there is a very considerable benefit here. I have shown that property valued at £100,000, with £20,000 worth of debts, ends up for tax purposes revalued at £64,000. Deputy Colley says that if the thresholds were different the results from examples given by me would be different. That may be so, but we are obliged to take the thresholds which are written into the Bill and it would be unreal to start assuming any other thresholds which are nonexistent.

Mr. Colley

No, but is it on the basis of the thresholds and the figures chosen in the example that the result is given?

Mr. T.J. Fitzpatrick

(Cavan): If the man was not liable for wealth tax the question would not arise. But if he is liable for wealth tax, the example and the result given by me can or will follow to a greater or a lesser degree, depending on the amount involved. The workings of this Bill will be monitored and will be kept under review and it may be necessary to change it from time to time. In the income tax position we have the other monstrous situation which went on for years where a person could borrow £10,000 to buy a house, not necessarily for his own use, was allowed the full amount of interest, and if he was in a very high income tax bracket he would end up by paying practically nothing. He could sell the house a few years later for £20,000 without paying one penny tax on the gain. That has stopped, and rightly so, and the amount is limited. As the workings of this Bill go on, if it seems necessary to alter it in the reverse way I am sure it will be done.

Mr. Wilson

It strikes me that the Minister is concentrating on the malefactor all the time. In other words, the concentration in his reply has been on the people who are going to use the system for their own benefit. I can see that the Revenue Commissioners, who are dealing with this kind of thing every day in the week, and who meet all sorts of Artful Dodgers, should have a concentration there. In my view, the Minister has an extra function, that is, to take into account the very real cases—and the Minister knows about them—where firms run into debt, much greater debts than their assets. In such cases the onus should be on the Revenue Commissioners to catch out the malefactor and to apply humane principles where they should be applied.

Mr. Esmonde

If the debts exceeded the assets, there would be no wealth tax payable.

Mr. T.J. Fitzpatrick

(Cavan): If the debts exceed the assets the question of wealth tax does not arise. Furthermore, we do not want to get into this discussion we have had for a long time. Deputy Wilson is dealing with firms. Firms are not liable or taxable at all. Only the shares in the hands of shareholders, if they exceeded the thresholds, are taxable. What is being done here is fair and reasonable, if a £100,000 productive asset with £20,000 worth of debts ends up as £56,000 for tax purposes.

Question: "That the words proposed to be deleted stand" put and agreed to.

Amendment declared lost.

Mr. T.J. Fitzpatrick

(Cavan): I move amendment No. 21:

In page 14, subsection (3), after line 14, to insert the following proviso:

Provided also that, in case of property consisting of stocks or shares in a trading company whose assets on the revelant valuation date consist wholly or mainly of premises registered in the register of hotels, kept by Bord Fáilte under section 24 of the Tourist Traffic Act, 1939, and the assets of the business carried on therein, this subsection shall, in respect of the valuation date falling in the year 1975 and the two valuation dates next following that valuation date, have effect as if "30 per cent" were substituted for "20 per cent" in paragraph (a), and "70 per cent" were substituted for "80 per cent", in paragraph (b).

The House knows that hotel bedrooms were treated generously in regard to wealth tax by applying to them the same exemption as was given to fishing boats and agricultural land. The House knows also that suggestions were made that this exemption and relief should also be extended to hotels owned by companies. It was pointed out that that simply would not be workable, but in recognition of the amount of capital involved in hotels and the low rate of return, this particular amendment has been introduced to meet the situation. Subsection (3) as it stands gives a 20 per cent relief for properties consisting of stocks and shares of a trading company. The proviso in this amendment now makes this relief 30 per cent for such properties in trading companies whose assets consist wholly or mainly of premises registered in the register of hotels kept by Bord Fáilte. The principle of wholly or mainly has already arisen in section 6 (3). The hotels must be registered with Bord Fáilte under the Tourist Traffic Act, 1939. The assets of the business carried on therein are taken into account in considering the extent of the hotels business vis-à-vis the other business, if any, carried on by the company. Trading companies included in the definitions in the next subsection comprise companies registered in the State or with a register of members in the State. The amendment is very much in relief of hotels owned by limited companies.

Mr. Colley

Could I ask the Minister about what he said there at the end? I understood him to say that the value of the hotel property would be taken into account vis-à-vis the value of other assets held by the company——

Mr. T.J. Fitzpatrick

(Cavan): Only for the purpose of being satisfied that the main business of the company is the hotel business. If the hotel were only a hobby or an insignificant part of the overall business it would not be granted relief.

Mr. Colley

I take it it would be a very substantial part of the business to get this benefit?

Mr. T.J. Fitzpatrick

(Cavan): We use the words “wholly or mainly”.

Major de Valera

I appreciate the force of the Minister's arguments on the last section and I again take the opportunity of apologising for remarks I made in regard to the mistake on the equivalence of the percentages. The same point arises in another way on this. Again you have the gearing of this amendment, 30 to 70; 70 is 100 minus 30. Deputy Esmonde is right when he says that if the debts exceed the value of the assets, then there is nothing payable. It becomes a minus quantity. There is an area, I think, where the deletion of the figure "80" which we discussed before and, in this amendment, the deletion of "70", would make a substantial difference in favour of the hotel in this case. I would urge, even though the Minister has rejected this principle on the last amendment, that this is an administrative approach to this, a kind of administrative logic. Whatever the merits of the previous amendment, here the Minister might consider either deleting the 70 per cent or leaving the 80 per cent stand. If he deleted the 70 per cent, he would leave it at 80 per cent. It therefore is 100 minus 30, which is 70 per cent of the assets less 80 per cent of the debts, would be involved in this case. Notwithstanding debate on the last amendment, and freely admitting that the Minister made a strong case for himself on the last amendment in the particular case of hotels here, and since this is a proviso and an addition, the Minister would greatly improve his amendment and improve the section if he deleted 70 per cent and let the 80 per cent rule.

Mr. T.J. Fitzpatrick

(Cavan): We had a very full discussion, as Deputy de Valera said, on the last amendment, and I want to say that I fully accept his withdrawal, having jumped to a conclusion; I know there was nothing malicious in it. We had a very full discussion there and we established the principle of only allowing the same proportion of the debt as the valuation taken for the property. If we were to do what Deputy de Valera——

Mr. Colley

I do not accept that principle.

Mr. T.J. Fitzpatrick

(Cavan): We established it.

Progress reported; Committee to sit again.