Section 11 lays down the general rule that the amount of any income to be brought into charge to corporation tax is to be computed in accordance with income tax law and practice. The income from each source, so computed, and any chargeable gains (computed in accordance with section 13) are to be aggregated to arrive at total profits to be charged to corporation tax for an accounting period. In computing income no deduction is permitted for dividends and other distributions. The section also prohibits any deduction in computing income for amounts which under section 10 are set against total profits. The section also extends to corporation tax existing income tax exemptions, for example, for credit unions and charities.
SECTION 11.
Question proposed: " That section 11 stand part of the Bill."
What will be the position of companies carrying on farming activities?
Section 17 deals with losses on farming and market gardening. Companies would be liable in the ordinary way to corporation tax.
The Minister says the profits of a corporation for corporation tax purposes would be computed in accordance with the income tax law, and that would apply to farming profits. Presumably the rules applicable to computing farm profits will be those that have been laid down in the last two Income Tax Acts covering this matter?
That is not the precise situation. I hope that I remember the correct language now. The law says that profits are liable to tax, so farming profits are liable to tax, although, of course, they can be exempted. Therefore, the general principles of computing income apply to the computation of farm profits. Under a certain level they are exempt in the hands of individuals. They do not bother to compute tax.
All corporations carrying on any sort of a farming business will now be fully liable for corporation tax, with no special consideration or special exemptions?
The answer is in the affirmative. As at present, a company carrying on farming is liable both to income tax and corporation profits tax. That situation is being maintained in this legislation.
The profits will be computed in accordance with the existing income tax farming provisions?
Yes. At the moment, the exemptions for farming do not apply to corporations.
There are various rules about farm buildings.
They will apply in the ordinary way.
What would the position about local rates be? Will a corporation carrying on farming activities be liable for iniquitous local rates and corporation profits tax? Will local rates be allowed as a charge in the accounts, or what will the position be?
They will be allowed as a deduction in the ordinary way, as they are in relation to another commercial enterprise. If the trading business of the corporation is farming, it is entitled to the ordinary concessions and exemptions that apply to trading corporations. There are special provisions with regard to farming activities.
Is there not some exception in relation to tourist hotels or does that apply only to individuals?
I think it only applies to individuals.
There are special provisions for individuals in regard to hotels, under the income tax code, in so far as capital allowances are concerned, but there are special provisions for corporations also engaged in the hotel business in regard to capital allowances. It is difficult to relate them all under the provisions of this Bill.
What is the position of a farmer who, for good reasons, forms himself into a corporation to carry on his farm? Will the corporation be liable for full rates or in so far as these rates apply to land and buildings, will they be chargeable in his accounts to corporations tax?
Deputy Haughey posed a question in relation to agricultural grants by way of relief of rates.
No, whatever agricultural rates are paid in a year by a farming corporation, will be allowed in its accounts?
Yes.
On the farm buildings and the farm land?
Yes.
But presumably not on the farm residence?
No, not on the farm residence. It would be similar to that which applies to the individual.
If the farm building was part of the farming unit, his account would be allowable as in any business.
There are certainly grey areas here when it comes to borrowing for excess interest provision. What will or will not be directly related to the trading of the farming corporation?
There is an apportionate provision used under the income tax so far as the rates are concerned in relation, say, to a mixed residence in business.
I am talking now about farm buildings. I left rates behind. I am talking about interest provisions, the disallowance of interest in excess of £2,000 in certain circumstances. I can foresee us getting into very grey areas where farming corporations' borrowing is concerned.
It should be less trouble dealing with a corporation than with an individual. Corporations will have private residences. There will have to be a division between the corporation and the individual as regards interest, payable on the residence where an individual is living in the residence on a farm.
There is a reference in subsection (1) to various questions being determined in accordance with income tax law and practice. I assume that the reference there to " practice " is to income tax practice in this country. It is true to say that there are practices in relation to income tax, perhaps even similar to provision which differ in this country from, say, Britain, but that what is intended to apply here is the income tax law and practice in this country.
Yes, but it is not necessary to qualify income tax law by saying the income tax law of this country. I presume the parliamentary draftsman did not deem it necessary to qualify " practice " by saying " the practice of this country". That is the only practice the courts could look at. Perhaps in interpreting the real law the courts may look to the laws of other countries to assist them.
Is the Minister satisfied that the word "practice", without definition—I am not referring just to the country—is sufficient? What kind of thing is envisaged when we talk about practice here? Is it the general practice of the Revenue Commissioners in relation to the income tax?
Deputy Colley is now creating a worry in my mind. It is to be presumed that what is meant by practice is lawful practice.
There are certain definite rules that any accountant will tell you apply.
Are there practices followed by the Revenue Commissioners following precedents which are known only to the Revenue Commissioners?
No. Any rulings made by the Revenue Commissioners or the courts become, in due course, the general knowledge of practitioners in the field. Take an area where there is a total lack of statute law, this question of residence. Adjudications are made from time to time on the basis of practice, looking at the facts of individual cases, but no more than in other countries, we have not tried to define matters of residence according to any particular legal rules. However, the practice in determining such cases is fairly well established. This is the kind of practice I would visualise coming in for consideration under this subsection.
The Minister has to some extent anticipated what I was coming at. He will recall that in connection with other legislation I was asking questions on this very matter that he mentioned, namely, residence, as to how it was determined. He will recall that I had received—and I informed him in the House—advice from quite a number of experienced practitioners to the effect that there were no rules laid down in regard to certain aspects of this. In due course the Minister very kindly wrote to me with information. But it does seem to me that the information which he gave me represented the general approach of the Revenue Commissioners in this particular area, and that practitioners in this field were either unaware of or did not fully accept the line being taken by the Revenue Commissioners in this regard. I am drawing attention to this fact simply because we use here the word " practice ". It may be that in the absence of any definition of what is meant by this you are going to have quite a grey area under this wording.
All I can say is that it is not my own work. It is no more than following existing practices. What we are simply saying is that the ordinary known rules of income tax operations shall apply. If we were to proceed to define all income tax practices we would need a new——
I agree, but would the Minister know offhand whether there is a similar reference to income tax law and practice in any other existing statute?
We know it exists in the British Corporation Tax Act. It strikes me that possibly one could omit the word " practice" because the practice at the moment is, in fact, the application of the income tax law.
That is what I would have thought.
As a practitioner, may I say I think it would be most dangerous to delete those words.
I think it would be too restrictive.
From the point of view of the efficacy of the law, I would be inclined to go with the Minister.
We have three separate things now in this connection—principles, law and practice.
Three very useful words. Leave them there.
On other legislation I was questioning what the particular provision put there was. It referred to the existing law on residence. The Minister, after considerable difficulty, I think because it took him a long time to do it—eventually produced for me details of how the Revenue Commissioners viewed the situation. I pointed out to him that many practitioners had informed me that this was an area of uncertainty and that it should not be referred to in the law if it was not certain. The Minister did produce what the Revenue Commissioners obviously regarded as being certain as far as they were concerned. The point I am making in this context is that there was uncertainty about it, and in so far as eventual certainty came in, it was certainly from the point of view of the Revenue Commissioners but not necessarily from anybody else's point of view. But here we are incorporating the word "practice" in this subsection. It worries me a little that it tends to be an area of uncertainty that we are incorporating into the law.
In spite of the remarks that I have already made I would agree with the points of view expressed by the Chairman. Whether we like it or not, the taxation code puts the Revenue Commissioners to some extent in a judicial capacity as well as mainly in an administrative capacity. If it does that, I have an aversion to putting them into a straitjacket. I know I have gone beyond what the Revenue Commissioners themselves would desire in arguing on more than one occasion in the House for discretion. I appreciate the reason for that. Discretion when it is undefined can be embarrassing. Here you have a pretty well-defined area. In spite of what Deputy Colley is submitting about the word "practice", it is a fairly understood thing. On balance I would go with the Chairman's view on this that the word should remain.
The rules which the Minister so kindly made available to Deputy Colley, are they to be made available to us all——
It was arising out of one of the sections in the Capital Taxation Bill, but I would be only too happy to give the information to Deputy Haughey or Deputy de Valera.
It would be very helpful.
There is another reason why " practice " should be retained here. The way in which company profits are computed arises not out of law but out of accountancy practice. That will be needed for this Bill. It is necessary to maintain it. These practices may well, as we know, be changed. The Revenue Commissioners accept what is the standard practice in computing profits.
That is accounting practice. We are talking here about income tax practice.
Even for the purpose of assessing liability for tax the accepted practice must be used.
The difficulty is that if you do not accept the accountants, then you have to set up your own auditing and you have to go ab initio into the entire accounts of a company, which is a practical impossibility. So the Revenue Commissioners must necessarily depend on the accounting profession as an aid in the collection of taxes.
I agree with that.
The accounting profession are aware of this and act responsibly.
Yes, that goes with out saying.
Question put and agreed to.