The Gazette 1972

Spring Seminar of Solicitors in Galway on Tax Law

The Spring Seminar of the Society of Young Solicitors was held in the Great Southern Hotel, Galway, on 25th and 26th March 1972. The seminar was arranged with the Association of Provincial Solicitors, and there was a large attendance of 250. The first very technical paper was given by Mr. Joseph Charleton, Accountant, on "Shares in Private Companies and Estate Duty". He emphasised that the Finance Act, 1965, was mainly devised to stop up loopholes in Estate Duty which had been discovered by the combined wits of the legal and accountancy profession. In practice almost every source of income goes on producing capital and it is a simple and effective process to capitalise the annual income tax return. Examples of those who would benefit by this form of capitalisation would be : (1) The family businessman who has built up a large business in his sole name with business properties and a good house. His life insurance might often be inadequate. In this case the businessman should doubtless convert his busi- ness into a limited company and make a settlement of the shares among his family. As regards trading com- panies, the control will eventually be decided by the destination of the profits when formed, and, in effect, the gift comprised in the settlement must be uncondi- tional, absolute and final. In the new company, in order to avoid heavy taxation, the settlor must make himself a minority shareholder. He must divest himself of control, and he will only feel safe when the five years period has elapsed. (2) The private individual with a large portfolio of investments and a good house. Here the keypoint's the intention of the settlor. Where he is likely to be sur- vived by his wife and children, perhaps the best way is to make certain outright gifts to his wife and arrange that she and himself are minority shareholders in the family investment company which will be mainly for his children and other relatives. Mr. Garrett Gill, S.C., gave the second lecture on "Trusts and Settlements", and emphasised that the commonest form of settlement until recently was the marriage settlement. However, recent legislation, in par- ticular Section 28 of the Finance Act, 1965, and Section 41 of the Finance Act, 1971, had drastically limited the benefits to be derived from such a course. The word "Settlement' has been differently defined at various times by various Acts, and cognisance would have to be taken of Section 2 of the Settled Land Act, 1882, followed by the decision of Palles C.B. in Attorney- General v Power (1906) 2 I.R., and of Kenny J. in re Oranmore and Browne—Revenue Commissioners v. Royal Trust Co. Ltd. (1971). The useful exemption to estate duty under Section 5 (2) of the Finance Act, 1894, was also fully considered. A wider definition of the term "Settlement" was provided by Section 20 (5) of the Finance Act, 1949, as amended by the Finance Act, 1941, and by Section 21 of the Finance Act, 1961. The lecturer stated that the Revenue Commissioners are in the happy position of making words mean what they want them to mean, and the broad definition was thus carried further in Section 447 of the Income Tax Act, 1967.

Before 1965, with regard to discretionary settlements, there was no estate duty payable on the death of any of the class of possible beneficiaries save in very excep- tional circumstances. There are excellent precedents of discretionary trusts in successive editions of Potter and Monroe's Tax Planning, which are worth consulting. In considering the framing of discretionary trusts, the following provisions will have to be taken into consid- eration : (1) Section 28 of the Finance Act, 1961, as amended by Section 35 of the Finance Act, 1971; (2) Section 21 of the Finance Act, 1965; and (3) Sections 438, 443, 444 and 445 of the Income Tax Act, 1967. The effect of each of these sections will require very careful consideration. The next paper was given by Mr. P. J. Egan, Prin- cipal Inspector of Taxes, on the Irish Value Added Tax which is to be introduced on 1st November 1972. The present system of sales tax was changed primarily as a requirement of entry into the Community (although the Italians have wisely refrained from introducing it yet). Other alleged advantages are that "it makes evasion more difficult and that it will relieve the element of double taxation", doubtless by vastly increasing the cost of living. Value Added Tax is a tax on consumer expenditure which is levied in direct proportion to the price of goods and services supplied regardless of the number of stages in the production. The total tax is collected from the person who sells the goods or renders the services. The following are the essentials of liability to this t ax: (1) A taxable activity must be carried on; (2) by an accountable person; (3) from whom consid- eration must accrue. Taxable activity includes the de- livery of goods and the rendering of services in the course of exercising any trade, vocation or profession. Goods given a zero rating in the Second Schedule are completely exempt from tax. The term "goods" in- cludes most movable and immovable objects, including all land and buildings. Any person who delivers taxable goods or renders a taxable service in the course of business is deemed to be an accountable person. Far- mers, fishermen and certain small traders can elect to be exempted, and special arrangements will be applied to landlords, solicitors, accountants, and veterinary surgeons. An accountable person is required to furnish to the Revenue Commissioners particulars which will enable them to register him. Goods coming into the State will be taxed at the same rate as the delivery of goods within the State. It is to be noted that, on the delivery of land and buildings, where chargeable to lax, and on building work and repairing and maintaining buildings, only 60 per cent of the consideration is chargeable. The normal consideration is that agreed upon at the time the goods are delivered or the services are rendered. It is to be noted that all building work, and the "delivery" of lands and buildings has been brought within the scope of this tax. However, there is no lia- bility on the sale of agricultural land or on the sale of houses already built and occupied before November 1st next. A purchaser will have to pay this tax in respect of any house built after 1st November 1972 but will not - 2 4 8