asked the Minister for Finance if he is aware of the huge discrepancy between the number of companies assessed for tax in 1980, which was only 29,442 (according to the Revenue Commissioners Report for 1980), and the number of companies registered which was 60,054 (according to the Annual Report of the Department of Trade, Commerce and Tourism on Companies); and the steps that have been taken to establish the tax liability of registered companies but which have not been assessed for tax.
Ceisteanna—Questions Oral Answers - Company Tax Assessment.
8.
Liability for corporation tax, in general, arises in the case of trading companies. The numbers on the register of companies include companies, other than trading companies. The Revenue Commissioners maintain a constant surveillance of additions to the register.
The records show that there are at present some 25,000 companies which have ceased to trade or which have never traded. This would account for the bulk of the difference between the registrations and assessments raised. Corporation tax assessments are made by reference to accounting periods, normally of 12 months' duration, and the first assessment on a new company would not usually be raised until the first accounting period had elapsed. New companies would accordingly account for the balance of the difference between the two figures reported by the respective agencies.
Perhaps the Minister will enlighten my ignorance in regard to companies other than trading companies. What precisely are the other 50 per cent of registered companies that are not trading companies?
As I have pointed out, part of that figure would arise from the existence on the register of companies that have never traded and there are quite a number of companies on the register that do not trade. These companies were registered for one reason or another but never traded and, consequently, would not be in the position of attracting tax liability.
What would be the purpose of such companies?
There are probably a variety of reasons. It is common for people to decide to register a company on the basis that they might decide one day to carry on a certain kind of business but then never become involved in that kind of business.
Would these companies be established for the purpose of confusing the Minister and his Department, precisely for the purpose of evading tax or transferring assets from one company to another? If so, while they may not be trading companies they would be fiddling companies.
The situation is as I have described it. Companies which are not trading may be companies that were registered, for example, to protect trade names. Non-trading companies may also be companies that have been liquidated but which have not been removed from the register, what are known as shelf companies for the purpose I described earlier. Therefore, there is no necessary correlation between the fact that a company is registered and any tax liability there might be on the basis of the operation of the company.
Would the Minister not agree that apart from trading companies which are liable to corporation tax, investment companies that do not trade would be liable also to corporation tax on their investments? Are those included in the category liable to corporation tax and can the Minister indicate also what steps the Revenue Commissioners take to follow up on the tax history of company activities apart from the initial inquiry they make immediately after incorporation?
The liability would arise for any company involved in a taxable activity attracting corporation tax. The Revenue Commissioners have a number of means of finding out if a company is involved in trading and, therefore, in deciding whether there may be a tax liability. For example, when the Revenue Commissioners find new companies appearing on the register they would normally send a query to the company concerned to determine its activities. Information could also arise from the fact that the company would register for VAT, PRSI or PAYE purposes and that would be followed up by the Revenue Commissioners. Another case where an inquiry might be provoked by the Revenue Commissioners would be where there was a property transaction in the name of the company or the existence of a bank deposit in the name of the company. All of those different avenues are explored by the Revenue Commissioners to determine if there is a liability.