This section corresponds to section 380 of the Income Tax Act, 1967. There are a number of necessary changes. Briefly it provides that a distribution made partly out of exempt income and partly out of liable profits is to be treated as two separate distributions.
SECTION 76.
Question proposed: "That section 76 stand part of the Bill."
We are still talking in terms of Shannon?
Yes. The distribution made out of exempt income is in the hands of a company being treated as income from exempted trading operations and in the hands of a person other than a company is to be disregarded for income tax purposes. A distribution made out of exempt income is not to carry the tax credit. Tax credit, of course, only arises where the liability for tax payment arises.
Did the Minister indicate some change here?
No.
Question put and agreed to.
NEW SECTION.
I move amendment No. 20:
In page 68, before section 77, to insert a new section as follows :
" 77.—Where charges on income, which are payable out of the income of a trade consisting partly of exempted trading operations and partly of other trading operations, are paid in an accounting period by a company there shall be treated as paid out of profits brought into charge to corporation tax only the portion of the charges so payable which bears to the total amount thereof the same proportion as the amount of the income of the trade actually charged to tax bears to the amount of such income which would have been charged to tax if this Part had not been enacted.".
In the booklet of examples which has been circulated there is an example which illustrates the effect of the new section 77. The amendment is designed to preserve the status quo and it is in ease of the taxpayer. The wording is broadly similar to the existing legislation. Under existing law, charges on income, for example, royalties or annuities, payable out of the profits or gains of a trade, consisting partly of exempted trading operations carried on at Shannon Airport and partly of other trading operations are under section 381 of the Income Tax Act, 1967, apportioned over the two categories of profits. The example explains this. The proposed amendment, the wording of which follows the lines of section 381 of the Income Tax Act, 1967, preserves in the Corporation Tax Bill the position which exists under the present law.
The position is that the original section 77 was slightly different from that?
Yes.
The Minister seems to have in the original section all sorts of complicated formulae which are being dispensed with. Is that the position?
Yes.
How is the Minister able to put in three or four lines of very clear-cut succinct English what previously took half a page of algebra?
What we have done is to apply existing law in the amendment to maintain the reliefs which as originally drafted would have restricted somewhat the exemptions enjoyed at present. I decided it would be better to let all existing exemptions be enjoyed. That is why we have been able to adopt the form which simply reflects existing law rather than setting out a new procedure.
It seems perfectly simple although I am sure it is not.
There is an example in the tables, midway down the page, of the amount of £2,727 which is the liability. Under the section as originally drafted that would be £3,500, so it will be a gain to the company as a result of the amendment.
Yes.
Amendment agreed to.
Acceptance of this amendment involves the deletion of section 77 of the Bill.