Léim ar aghaidh chuig an bpríomhábhar

Seanad Éireann díospóireacht -
Wednesday, 20 Jul 1938

Vol. 21 No. 8

Finance Bill, 1938—Committee.

Sections 1, 2, 3, 4, 5 and 6 agreed to.
Question proposed: "That Section 7 stand part of the Bill."

I wish to enter a protest against the way in which we have been rushed in taking the Committee Stage of this Bill. Some highly technical matters arise for discussion. Some of us wished, after the Second Reading debate, to get expert advice on some matters that arose. On this section, we laymen have to argue without the help of that expert advice. The Minister has got a whole array of experts supporting him, but we are absolutely dependent on outside experts to advise us. I know, of course, that on this Bill we can only make recommendations. I think it is rather stultifying the purpose of this House to take Bills in this way. In view of the present position, all we can do is to ask leave to move verbal amendments.

Would it be in order for the Senator to move to report progress, and have the Committee Stage of the Bill taken to-morrow?

I suggest that the Senator should discuss the matter which he wishes to raise on the section, and move his amendment on Report Stage to-morrow.

If I am in order, I move now the deletion of sub-section (4) of Section 7. The effect of the section, as I understand it, is to tax those funding bonds paid in discharge of interest at their face value. That can only be equitable on the assumption that, first of all, the taxpayer knew that that was the case, so that he could readily realise; and, secondly, that they were realisable at their face value. I understand that frequently neither of these conditions is fulfilled. Generally, I think these bonds are unsaleable, or certainly only saleable at considerable discounts. If that is so, and I do not think it can be denied, the position is that the taxpayer is being taxed in respect of money that he has not received. Surely that is fundamentally wrong. I do not suppose that the Minister is, for a moment, going to stand over the collection of taxation on money that has not been received; but, moreover, I understand that the section is retrospective. Bonds may have been paid five years ago in liquidation of interest; those bonds have since depreciated, some to a very low figure indeed, and meanwhile the whole thing is going to be ransacked retrospectively and the taxpayer is to be assessed for interest which has been paid in bonds some years ago, but when the bonds are worth half or less their value at the time they were paid and handed over. It is most inequitable, and I move the amendment to that sub-section—crudely drawn up, I admit, because it is a thing that should be drafted technically—in an effort to relieve those injustices.

I think the Senator is under a misapprehension about this section. Nothing new is being done. The whole matter arises out of a case which was heard in the English courts where a foreign Government issued funding bonds in settlement of interest and the courts held in that case that the value of the funding bonds was not income of the recipient. This section provides that the value of the funding bonds shall be taken as interest. It has always been the practice that it should be regarded as part of the income of the recipient. It is merely intended to prevent similar cases arising here.

Is that the nominal value?

No, the value at the time of issue, if the bond is face valued for £5 and if the person is able to sell it at that particular time. These bonds have a market and it is assumed that a person who has income invested abroad in some of these countries which have had to default in the cash payment of their interest will be a person who is able to look after his affairs or who will have some competent person to look after them for him and that when the bond is issued he has an opportunity of selling it at its market value in that particular place. On the other hand, he may have to sell it at a discount and he may get only £4 instead of £5, but if he holds on to it in the hope and expectation that he will make a profit by that he will only be charged on the market value at the time of issue. If he holds on and the value of the bond goes up he will, nevertheless, be only charged income-tax on the value of the bond on the date of issue. On the other hand, if he holds on and the value declines to £2, well, he has got to take the rough with the smooth and he will have to pay income-tax on the market value of the bond at the time of the issue thereof. The section very specifically does not make any reference to the nominal value or face value but to the value of the said bond at the time of issue. I am advised that the practice is not to have regard to the face value but, as I have already said, to the market value only.

Will the Minister say what "time of issue" means, because a considerable time, perhaps a month, might elapse before you could get a quotation?

"Date of issue" means the date of issue of the bond.

But it is generally about a month before you can get a quotation. I am not personally interested, but I know a company that was and the quotation was about 20 per cent. less than the value of the bond when it was issued.

When it is a question of taxation on the bonds, there will be full regard as to what the value was at the time of issue. The fact that a person has not been able to dispose of the bond is no fault of the revenue authorities. There are two quite separate things. What the revenue is concerned about is what was the income which the owner of the bond would have enjoyed at that particular period. It may have happened that these bonds would have been issued, even by the holders, at a discount. That is one thing. What the recipient might lose in respect of a series of commercial transactions which would centre around that bond after the bond had been issued to him is quite another matter. He is then dealing with that bond another way. What we are concerned about is what he can sell it for immediately after the time of issue, and what would be regarded as the market value of the bond, not the face value. I want to make that quite clear. The question of nominal or face value does not enter into it. It is what the bond would fetch in actual value—the fact that he has placed his capital in a country which does not enable him to look after it is no reason why the revenue should not be protected.

I do not think that the Minister gets my point at all. What happens is that you receive a notice, generally through your bankers, that the interest is not being paid, and in lieu thereof that a funding bond is being issued. That I know happened in one case. You get that three weeks or a month after the date—sometimes a couple of weeks, but usually three or four. You are entitled to send the bond down to the Dublin Stock Exchange and get a price offered for it, and if you refuse it, then I would agree entirely with what the Minister has said. When you got it you had an opportunity, you were taxed on what cash you could have got for it, but if you are to be taxed on what it could be said somewhere else was the value of it, it is another matter. The practice of foreign Governments is that you do not get the bond perhaps for some months afterwards, and it is impossible to say what will be the value at that time—it might be higher or lower in a month. So long as I was assured that the tax was only levied on the price the holder was offered I would be satisfied. If the bond was something which could be immediately translated into cash the Minister's proposal would probably be equitable.

I would like to ask what has been the practice hitherto and to what extent does this section change that practice?

It is not possible to make the actual date of issue and the market quotation in England synchronise. The practice has been to take what the bond would fetch in Great Britain at or about the time of issue on the London market, and there are ways of finding out what that was at the time. That has been the practice, and this section does not propose to make any change. I may say, if it would ease the mind of either Senator Sir John Keane or Senator Douglas, that the phraseology that has been used in this section is the phraseology used in the English sub-section in the section introduced in the English Finance Bill to deal with the particular case arising in the English court and to make certain that where a funding bond had been issued under these conditions, its value would be regarded as income and chargeable to tax, so that we are not proposing to do anything more than is being done already, and certainly the Administration will not depart from the existing practice in regard to these bonds.

The position is then that if anyone has a grievance they would have the very same one if they were in England?

That is the position.

There is one thing that I would like the Minister to elaborate, and that is how it is that this section is necessary because of an Act of the English Parliament. Secondly, the sub-section says:—

".... and the redemption of the said bonds shall not be treated for any of the said purposes as payment of the said interest or any part thereof."

In other words, person who would and may have bonds of this type, will be taxed not on their value, not on the money they get for them, but on the value they are at some time, although perhaps it is a false value. In other words, the Minister is dealing in this matter on a gamble. Everybody in the Stock Exchange is gambling to some extent, but those bonds issued in lieu of interest usually appreciate or depreciate according to the value of the security. Usually, I think the Minister will agree with me, they depreciate, and the person is now assessed, not on his actual income, because this is an income-tax matter, but on some property which he is supposed to have possessed and which disappears. I should like to have that matter elaborated more clearly.

I am afraid that I suffer in regard to the Senator the same sort of disability that he may suffer in regard to me, but as to the point as to why this is necessary following an English Act, it is necessary following a decision in an English court which has cut across the practice existing up to the present. It is necessary merely in order to copperfasten the law.

Or the revenue?

There is a possibility that the practice which has been followed here might be challenged in the courts, and we want to make it clear what, in our view, the law has always been. That is the practice that is being followed in the Bill. With regard to the proviso—

".... and the redemption of the said bonds shall not be treated for any of the said purposes as payment of the said interest or any part thereof."

Let us consider the position: A gets this funding bond and he sells it to B, but A is charged on the market value of the bond at the time of issue, that is, he is charged income-tax, and as the value has already been taxed once, there is every reason why it should not be regarded as income in the hands of the other man and taxed twice.

In view of the Minister's explanation, I should like to withdraw the amendment, reserving the right, if I am advised further, to bring it up again on the Report Stage.

Amendment, by leave, withdrawn.
Section 7 and remaining sections of the Bill put and agreed to.
Schedules and Title agreed to.
Bill reported without recommendation.

When is it proposed to take the Fourth Stage?

To-morrow, if it is convenient, so as to give Senator Sir John Keane an opportunity of raising again the matter he dealt with to-day.

Ordered: "That the Fourth Stage be taken to-morrow."