I have a number of points to make on this section. The first is that anti-avoidance operations—this is one of them —will be effective only against those who are not rich or very rich during a time like the present when we have not a gift tax as part of our structure. You will not get a desirable state until there is a gift tax. Apart from the injustice this does to the people of moderate resources, after all public policy is directed to encourage all people to save without having a degree of injustice perpetrated on them. We who are, as the Minister is, practised in law, have a duty to our clients to extract the maximum possible benefit that we can out of legislation as it exists.
There is a well recognised distinction between avoidance and evasion. That, in a sense, is a professional matter. It is important to get laws which accord with what seems to people to be just. This is an unfortunate fact and I know the history of it goes back to medieval times when the terrible misfortune of death should have attended this tax gathering operation.
A formal parliamentary draftsman told me a very good story about a medieval monk who was surveying a scene of carnage. I want to remind you that at that time the Church was entitled to get rewards out of the existence of wills, but if somebody died intestate there were no rewards for the Church. The monk surveying this scene of carnage said: "And there they all were, dead, stinking and intestate." So the fact of death having effects on living persons' receipts is not new. I imagine it is worth a psychological analysis.
Anything which shifts over the rate of taxation from this unhappy and inevitable experience is worthy of careful consideration. Here I want to warn the Minister against his advisers —the more intelligent the more terrible they are—because of the old business of getting fond of the "old Dutch". You engage in a practice throughout your life and the more you engage in that practice the more accustomed you are to it, and the more curious psychological compensations come to you from your increasing expertise in it the more uninterested you become in its ultimate social significance. It has been recognised that we have an open economy, more open than the British one, and therefore we cannot be thinking in a vacuum: we have got to think in terms of the international significance of what we do.
I know something about the weight of tax duties between Britain and Ireland and the limitations upon our actions there. We may be getting some degree of freedom here and we ought to examine the whole structure of our estate duty, legacy duty, succession duty and death duty codes in terms of benefits for our society— both in terms of productivity and just distribution.
That brings me back to section 32. It is right that I should say that as one seated at a desk I am concerned to take advantage of anything I find in section 32, or section 21 of the Finance Act, 1965, which it replaces. Standing here, I do not find myself so free. It is useful to take a look at the section to see whether what is designed to be a tax anti-avoidance section effectively achieves what it sets out to achieve.
This is the first time it has become necessary for living persons to define what is a deceased person. If the Minister's public relations officers are not fully employed they should direct the Guinness Book of Records to this. We are here anxiously wondering are we dead or not. We can be told we are dead under the definition in subsection (1) of section 32 and be assured we are not if we do not fall within the definition of the subsection. Subsection (3) deals with a distinction between capital and income. The object of the subsection is to determine what is to be sliced for the purposes of determining what is to be the chargeable interest. It includes in income, and excludes from capital, that which is accumulated.
If I were a trustee who wanted to accumulate income which was not to be available for slicing and which would be turned into capital for the purposes of the section, I would form a company which would accumulate the income, the shares which I would hold as a trustee, and the benefit from which I would get simply through capital redemption of the shares which I would hold as trustee. The income which had been accumulated would be excluded from being treated for the purposes of the annuity and the slicing provisions of this subsection.
There is here a provision whereby you seek to capture for the purposes of duty people who are members, directors or employees of a body corporate which is a beneficiary under the trust; but it does not capture persons who are members, directors or employees of a body which is a holding company or a subsidiary company or an associated company or a company which contracts with the company to get the entire profit of certain specified transactions with the company which are the object of the trust. So having closed off 17 taps you are left with the 18th still open, through which pushes an immense amount of water.
The only effect of this type of legislation is to wake up some people to possibilities of which they were unaware before it was introduced. We have talent, but it is not all that thick on the ground and it is wrong to have it diverted to an unsatisfying operation of tax avoidance. Suntans on foreign beaches can be frightfully boring when the midges bite. It is much more satisfying to be engaged in an operation which is essentially productive. It is better for society that people's talents should be diverted to productive operations. We must endeavour to get a system of taxation which does not present problems requiring people to get this type of advice.
As I read the section, we could have somebody who was not an object of the trust at all seated in this castle, permitted to do so by his trustee which could be a limited company created by himself, without any assets, and being rendered liable in the event of his being found to be in breach of trust in occupying the property in question. Not even a liability for duty will arise where somebody occupies, or forcibly enters the property in question. There seems to be no charge for duty arising in that case.
Regarding subsection (6) and the definition of "market value", what is the position if the property to be valued by the Revenue Commissioners does not exist at the time of death but has been replaced by something else? If a man is seated for five years in 22 Nutley Road and in the sixth year moves to 20 Nutley Road with the co-operation of the occupier of No. 20. Which property is valued if that man drops dead? Is it 22 or 20?
I know the disappearing tricks were thought to have been cut off by an earlier provision of the code, but is the disappearing trick not here remaining as a possibility in relation to this particular benefit under a discretionary trust? I have no confident answer to the question.
What is the position if the trust is terminated? Is the position such that the trustee cannot safely terminate a trust without getting a discharge from the Revenue Commissioners in respect of a possible future liability in relation to a distribution made during his term as a trustee? What is the position regarding duty if the trust company is a shell—if the property has been sold in circumstances not rendering the purchaser liable? I do not wish to be difficult. I am just referring to matters which seem to arise.
Subsection (7), dealing with estate duty payable on the death of the deceased, casts enormous burdens on a trustee. If he is in an avoidance situation it is up to him to protect himself. If a body corporate has been included as the object of the discretionary trust and then some member of that body corporate dies unknown to the trustee, he could find himself in a very difficult situation. The logic of this is that he cannot make a distribution to a body corporate unless he gets complete security for any liability that may arise from a future death of an employee member of the company in question. Does it read "member when" because it does not appear to me to do so? What if you are a past member? What if you cease to be a member before the company get the distribution, having made a contract with the company that you will sell your shares on the basis that any profits arising from a particular distribution are to go to you? You are no longer a member, director or employee. What happens in that case?
On the question of the first charge on the property I genuinely desire information. In the case of a person buying a house in Artane, Ballymun, Ballybricken, or Donnybrook does this mean that, if he is buying from trustees who have this property and which property is subject to a first charge, he can be pursued? What is the position, firstly, if the death occurs before, secondly, if the death occurs after? This is not just nuisance-making. It is seeking genuine information. I know the Estate Duty Office will not do wrong but let us assume that they did. What would be the position technically in terms of liability of a purchaser for value? I presume if he is without notice in the vendor and purchaser sense he is all right. How much notice does this piece of legislation give him?
In subsection (8) there is a marvellous new phrase which has come for the first time into legislation and which departs in a striking way from the language which has been used in previous legislation. I find this very interesting. We all know what difficulties were attendant on the previous language used. Here it states:
The settlor or the person who was the financial source of the property the subject of the trust shall be deemed, for the purposes of section 24 of the Finance Act, 1940, to be the disponer in relation to the trust.
The Minister has taken time to define a deceased for us but has not chosen to define who is the financial source of the property. The previous language used in this sort of thing, as the Minister well knows, is "associated operations". That is like a ship that has been going through the seas all too long and is a bit clogged with botherment, living, and fish grazing against it. Now we have a new one, the person who is "the financial source of the property". Who in God's name may that include? If Mr. X's father gave him money, is Mr. X's father the source of money which Mr. X then gave on ten years later to his son-in-law? How far reaching may this be? McLysaght's history of families would be nothing compared to the business that is going to develop about who is the financial source of certain people's property. If I am a millionaire, have a chap who is my bully boy and pay him £50,000 a year for writing my name in the papers, am I the financial source of his property? Where does this begin and where does it end? If we are going to introduce a phrase like "the financial source of the property" we do need a definition whether in this or some future Bill limiting this in some fashion? That is all I wish to say on that section.
