§ Clause 8 (Grant of duties of income tax).
§ MR. MACFARLANEsaid, that last year a discussion had taken place upon a question somewhat similar to that raised by the Amendment he was about to move; but it referred to a different branch of the subject, and dealt only with the case of Companies which, trading in foreign countries, had their headquarters in London. The law was that they were liable for Income Tax, even upon income which never came into the United Kingdom. A case, in which this question was involved, came before one of the Courts a short time ago; and the Judge who tried it had ex- 475 pressed his opinion that, although the law was as he had stated, it was a very undesirable and very unjust law. Although the Income Tax was 40 years old, no Chancellor of the Exchequer had ever attempted to do what was now being tried. He expected, and hoped, the right hon. Gentleman would repudiate the action of some of his lieutenants, who had been going about town calling upon persons to make returns of income received not in England, but left abroad, for the purpose of assessment, and telling them that they were liable if they did not immediately make a compromise with the Commissioners to three times the ordinary tax. He believed there was no authority for that in the Act; but it was a form of intimidation used by the Commissioners to obtain information. It was well known that many persons had a great objection to come into collision with the Commissioners and undergo an examination in public on the subject of their incomes. He held that the Rules issued by the Commissioners for the guidance of persons filling up returns conceded the point for which he was contending. Then there was another objectionable regulation, which related to the receipt of profits from abroad in the shape of imports. It was provided that those imports should be recorded in several different towns—Glasgow, Liverpool, and one or two others. But if the persons who made the importations were liable for the whole of their incomes arising abroad he could not see upon what ground the Government kept a watch upon their imports. It was stated that if a person invested money in foreign securities He was only liable for Income Tax on that part of the interest of those securities which came into the United Kingdom. If that were so, on what principle was it that a person who invested some of his money in trade in India, for instance, was liable to pay on the whole of his profits? The Government claimed to tax a person so placed for the amount which he was employing in the development of the resources of India. He did not think the Chancellor of the Exchequer would contend that this was right, or that it should be done. Supposing an Australian gentleman came over to this country, leaving property behind him of the value of £50,000 a-year, and that, for his own private use, he had 476 £10,000 a-year remitted to him here. Did the Chancellor of the Exchequer think that, in a case of that kind, Income Tax should be paid on the £40,000 as well as on the £10,000? Then, supposing the Chancellor of the Exchequer made good his claim to charge 20 years' Income Tax on this £40,000, but the Australian died hero, leaving an accumulation of £1,000,000 in Australia, and that he willed this money away to a local stranger. In that case, would the Chancellor of the Exchequer claim Probate Duty on the £1,000,000 of accumulation? If not, what right had he to make the Australian pay Income Tax on the money which had gone to make up the £1,000,000? He (Mr. Macfarlane) would be very much surprised if the right hon. Gentleman defended the question at all; but, if he did, he should be very glad to hear on what ground he made the one charge and did not attempt to make the other. He would take one other imaginary case. Supposing an American came over to live in this country. Supposing, for instance, Mackay, the Silver King, came to England, and became subject to the Income Tax. Would the Chancellor of the Exchequer claim Income Tax on his $1,000,000 a-week in America? He did not think the right hon. Gentleman would ever make such a claim; and, if he did, he was quite sure he would not realize it, because the American Minister would probably intervene, and would place himself between the Silver King and the Income Tax Commissioners, who would be acting for, and under the direction of, the Chancellor of the Exchequer. As he had said before, the Income Tax was so vague that there was no possession in the world in respect of which a claim might not he made under it; and the only method there was of testing its real meaning was by observing how it had been put in force for the last 30 years. There was one other point he wished to mention. He should like the Chancellor of the Exchequer to say what amount of income would be chargeable if he was able to charge Income Tax on money that never came into this country. It would certainly be a very high estimate if he put it at about £4,000,000. Taking it, however, at that sum, the amount realized from this demand, which caused so much annoyance and 477 irritation, would be something considerably under £100,000. He asked the right hon. Gentleman, even if the letter of the law was on his side, whether it was wise, or expedient, or reasonable, to tax visitors to this country in this way, especially when the amount obtained by the tax was so comparatively small? A great many of those who would be subject to this tax were visitors, strictly speaking; and probably large numbers of them would return to their own country if the right hon. Gentleman attempted to enforce this charge. They would leave England, not entirely on account of the actual amount they would have to pay, but because they would feel a sense of wrong and injustice. Everyone would admit that whatever money came into this country, from wherever it came, was justly liable to be taxed; but the money which a visitor left behind him was liable to the taxation of the country in which it remained. He would give the Chancellor of the Exchequer another illustration of how this system would work. The Australian he had spoken of came over to England, leaving a large amount of money behind him. He took a house in London, and purchased a couple of carriages. Of course, he would have to pay the duty on those carriages. But he left a dozen carriages at home in Australia. Would the right hon. Gentleman claim Carriage Duty on the 12 carriages in Australia as well as upon the two in London? The same thing would apply to dogs. The man might have two dogs here and 20 in Australia. He (Mr. Macfarlane) could see no difference whatever between the cases of the Dog and the Carriage Tax and the Income Tax in this matter, except that the amount to be obtained by the last-named tax would be much better worth having than that which would be realized by either of the others; and this might influence the Chancellor of the Exchequer to some extent. The right hon. Gentleman said that if a man came into this country he must pay not only for what he brought with him, but also for what he left behind. That reminded him of the old story of the showman, who was in the habit of informing visitors to his booth—"You cannot go in without paying; but you can pay without going in." But 478 the right hon. Gentleman went really much further than this, for the right hon. Gentleman said—"You must pay whether you come in or not; and if you do come in yourself, you must pay for everything belonging to you which you leave behind." With these remarks, he begged to move the Amendment of which he had given Notice.
§
Amendment proposed,
In page 2, line 41, after the words "five pence," to insert the words—"Provided, That the tax payable under Schedule D in the case of persons residing in the United Kingdom, but haying no place of business therein, and not carrying on any trade therein, but deriving their income from the profit upon trade in places outside of the United Kingdom, shall be upon the amount of such profits transmitted to and received by them within the United Kingdom."—(Mr. Macfarlane.)
§ Question proposed, "That those words be there inserted."
§ MR. J. G. HUBBARDsaid, the question raised by the Amendment of the hon. Member for Carlow was an exceedingly important one. It was important not only in its bearing on English interests, but also in its bearing on international rights. Going back some distance, he should like to call the attention of the Committee to the principle which was adopted by the establishment of the Income Tax. It superseded the principle of indirect taxation; and the consequence was that the principle was laid down that all property which arose in this country under the protection of the law, and all money which was expended in the country, were liable to be taxed. If they taxed all the property created in this country, thay taxed everything which really constituted the income of the people, and they need not, also, tax the expenditure. If the other countries of Europe and the world followed the rule of England, and taxed all the property created in their several jurisdictions, it was plain that, supposing we taxed foreign property on its arrival here, it was taxed twice over. He did not pretend that this was always an evil to be avoided, because many people who resided in this country, and had property created abroad, had in England the advantage of expending it under the protection and shelter of the English Government, and, therefore, might fairly be said to be under 479 an obligation to contribute to the expenses of the English Government. Looking at it in that light, the whole subject divided itself under four heads. The Government might tax incomes created in this country and expended in this country; they might tax incomes which were created abroad and expended in this country; they might tax properties created abroad and introduced into this country for expenditure; and, lastly, they might—and this was the point now at issue—attempt to tax incomes created abroad and not brought into this country. He admitted that, with regard to the three first of these categories, it was reasonable to place them within the grasp of the tax-collector; but he held, most clearly and distinctly, that neither in law nor in equity had they the slightest claim to tax property created abroad and not brought into this country. The Government claimed to call upon everybody who came to this country on pleasure, or who resided here, to make a return of all the income they possessed in any part of the world. As the hon. Member for Carlow had just pointed out, people might spend their thousands a-year here, and have tens of thousands accumulated in some other country, and the Government could ask them to make a return of all the property they possessed, both here and elsewhere, for the purpose of taxation. He looked upon this as a monstrous injustice, as an infraction of International Law and right, and he said it was a process for which the Government could find no justification in the Statute Book. He called the attention of the Chancellor of the Exchequer to this last fact as one which might, perhaps, weigh more with him than any other. If the right hon. Gentleman would examine the Statutes on this subject, he would find that in describing property, whether it arose from securities, trade, or manufactures, or insurance, it was always brought to this test—that it was to be charged at the place of entry. Not a single exception to that rule was to be found. He had some extracts from the Statutes bearing on the subject; and he found that in Section 108 of the original Income Tax Act it was provided that profits or gains arising from foreign sources were chargeable at the place where they had been first entered. 480 Section 29 of the same Act was to a similar effect. Again, in the 16 & 19 Vict., it was provided that nothing in the first-named Act was to except any person resident in any part of the United Kingdom with reference to the profits or gains received from or out of any possessions or securities in any other of Her Majesty's Dominions. These were the ruling enactments, and there was not a single word in them which gave the slightest authority for the action now attempted by the Inland Revenue Commissioners—namely, that of taxing properties which did not come to this country at all. The authorities, by this "fad" of administration, called on men to do something which under the law they had no right to do, and which was an infraction of the law. It had never been the practice, until recently, to charge with Income Tax profits of this kind. The other day he put a Question to the Chancellor of the Exchequer on the subject. He asked the right hon. Gentleman whether the Inland Revenue Commissioners were justified in calling on people to themselves assess properties which they did not bring into this country, and the right hon. Gentleman's reply was that they were. Then, if they considered themselves justified in doing that, the Committee would be justified in affirming the principle of the hon. Member for Carlow's Amendment, and in saying that such a gross infringement of international rights and of the law of justice to individuals ought no longer to be tolerated. He had very great confidence, indeed, in supporting the proposition of the hon. Member.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. CHILDERS)said, that a few nights ago he had to defend the existing arrangements with respect to Free Trade against the hon. Member for Preston (Mr. Ecroyd). One of that hon. Member's great complaints was that there was a tendency to make large investments in foreign countries rather than at home, and the answer was that the persons making those investments abroad were liable to pay Income Tax on them. To-night he had to meet the opposite charge, for the hon. Gentleman (Mr. Macfarlane), and his right hon. Friend (Mr. Hubbard), complained that persons carrying on trade here were not 481 allowed to make foreign investments, in cases where the proceeds of those investments did not come home, but were reinvested in foreign countries, without paying a tax upon them. He (Mr. Childers) differed equally from the hon. Member for Preston, who condemned these investments, and his right hon. Friend, who would have them untaxed. The right hon. Gentleman had used very hard words about this law, both with respect to its principle and its administration, and had quoted rather copiously from a Paper referring to various Statutes on the subject. He would respectfully state that he was acquainted with the extracts from the Statutes to which the right hon. Gentleman had referred; but they had no bearing whatever on the law as it had been laid down during the whole of the present century. Since the Income Tax was introduced during the French War, the principle had always been that annual profits or gains coming to persons residing in the United Kingdom, and accruing from trade, whether the same should be carried on in the United Kingdom or elsewhere, were subject to the Income Tax. Two cases which had been decided in this century proved that this was the state of the law. Of these, one was settled in 1808, and was the case of a man living at Hemel Hempsted, in Hertfordshire; and the other, which related to a merchant in the town of Hull, was settled in 1810. In both these cases the contention was that the profits made out of the Kingdom, if they did not come into the Kingdom, were not, and should not be, subject to Income Tax. In both cases, also, the decisions of the authorities were to the effect that those profits were subject to Income Tax, and this had been the universal decision of the authorities ever since. All subsequent decisions had followed these decisions, as forming a distinct rule; and such a rule had been universally observed and acted upon ever since as the law. If persons making profits in business carried on abroad had not returned them, we might be sorry they had not observed the law; but the law was very plain, and, as a rule, such profits were returned, and the taxes were paid upon them. He wished to say a few words as to one contention of his right hon. Friend and his hon. Friend the Member for Carlow. 482 They said that the question of expenditure ought to be considered in connection with the subject when one came to deal with the equity of the case; and they urged that money derived from investments abroad, and which was not brought into this country, did not represent any expenditure in this country, and therefore should not be subject to Income Tax. He would, however, remind the Committee that the Income Tax had not anything to do with expenditure. It was levied upon income, and not upon expenditure; and if they laid down such a rule as that which the right hon. Gentleman suggested, people who might have large incomes, but who spent very little, would claim exemption from a tax levied in such a way. The principle of the Income Tax was that a certain tax should be levied on income, and he was not now going to question whether that principle was good or bad. They had to deal with it as they found it; and if they introduced this element of expenditure they would land themselves in endless trouble. There was one other point to whether he would call the attention of the Committee. The right hon. Gentleman had admitted that it would be perfectly fair for a man trading abroad to pay Income Tax on the profits thus made if those profits were remitted to this country; but he had contended that if they were not so remitted, and were re-invested abroad, he should not pay Income Tax on them. Well, what would be the result of adopting a system of this kind? They would have, undoubtedly, one law for the rich and another for the poor. The merchant of small means, who brought home for his own benefit the profits he made abroad, would be subject to the payment of Income Tax on them; but the more wealthy merchant, who re-invested abroad, would escape Income Tax on such re-investments. Thus, the wealthy houses would escape a large amount of Income Tax; whereas the poorer houses would be compelled to pay the tax upon the whole amount of their profits. The plain and simple rule which now existed was the best—namely, that the Income Tax was payable on the profits made by persons who resided in this country, wherever those profits were made. If they once made any exception to this rule they landed themselves in inconsistency and difficulty; and he 483 hoped the Committee would not approve of the principle of the Amendment of the hon. Member for Carlow.
§ MR. MACFARLANEsaid, the right hon. Gentleman the Chancellor of the Exchequer had dealt with a case which was not touched by his Amendment at all—namely, the case of persons trading in England. His Amendment referred to persons residing in this country, and not trading at all. Again, the Amendment did not touch upon the question of expenditure. He admitted that the Income Tax was chargeable on income.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. CHILDERS)That is quite true; but I had to answer both the hon. Gentleman and the right hon. Gentleman (Mr. Hubbard), who did not follow the same line of argument.
§ MR. MACFARLANEsaid, the Amendment under discussion did not stand on the ground of levying the tax on expenditure. The right hon. Gentleman the Chancellor of the Exchequer had referred to the case of a merchant trading in Hull in 1810, who was declared liable to be taxed on the income he made from trading in other countries. But that was not the kind of case he proposed to except from the payment of Income Tax. The case his Amendment referred to was that of persons not trading in this country, or doing any business in this country. The right hon. Gentleman had not really touched the point of the Amendment at all.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. CHILDERS)remarked, that one of the cases he had quoted had been that of a person carrying on business in Hull; but the other had been that of a person who was not carrying on business in this country.
§ MR. MACFARLANEsaid, he should be glad to know if the second case to which the right hon. Gentleman referred had been a ruling case; and if persons in a similar position had been charged with Income Tax from that day to this?
§ MR. J. G. HUBBARDsaid, that when the right hon. Gentleman the Chancellor of the Exchequer accused him of introducing a new element into the question, he begged to observe that he was making a concession to the Inland Revenue Commissioners, by placing under their grasp properties coming from abroad and ex- 484 pended in this country. He would draw the attention of the Committee to an imaginary case. He would assume that there was a wine merchant here with large establishments in Oporto. He had a house in London and one in Portugal, and made £20,000 a-year by his business. Whether he spent all this or not, and whether he was an individual or the representative of a Company, he was bound to make a return of the whole of the £20,000 for taxation. But supposing the same individual had a share in a mine in Mexico, and was called on to return the profits of that mine, which had not brought a farthing into this country for years, he was under no obligation to do so. It was not at all a question of rich or poor, large or small houses. Every person established in business here, with a foreign trade, was bound to make a return of every farthing he made by that business at home and abroad; but in the case of a foreign business in which he had a share, or of a foreign property, and the profits of which were accruing abroad, in that case the Government had no right to demand a return, except for so much as might be received in this country. All the Amendment sought was to prevent the Government pursuing a course which would be equally futile and unjust.
§ MR. MACFARLANEobserved, that the discussion had turned entirely on persons in trade; but he wished to hear from the right hon. Gentleman the Chancellor of the Exchequer whether, in the case of a personal investment of a large sum in securities, he claimed a return for Income Tax of the income arising from the whole of those investments, or whether he contented himself with a charge on what came into the United Kingdom? The rule was that, as regarded interest arising from securities out of the United Kingdom, the duty was to be assessed on the amount which had been, or would be, received in the United Kingdom in the course of the year.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. CHILDERS)said, that if the profits came as trade profits into Schedule D they would be chargeable; but if they did not so come into that Schedule they would not be chargeable.
§ MR. MACFARLANEsaid, that in the case he had mentioned the profits did come within Schedule D.
§ MR. BIGGARsaid, it seemed to him that the right hon. Gentleman the Chancellor of the Exchequer had endeavoured to lay down the law clearly and fairly; but, at the same time, he thought his hon. Friend the Member for Carlow (Mr. Macfarlane) had been thoroughly justified in bringing forward the question, and that the arguments were entirely in his favour. It was quite impossible, in practice, for the right hon. Gentleman (Mr. Childers) to carry the law as it stood into practical operation. He would illustrate what he said by citing one or two cases that might, and would probably, arise. Suppose an Australian had made a large sum of money in sheep farming, and came to London and took a house, did anyone think it would be fair to ask him to pay the full amount of Income Tax here on his whole property in Australia, in addition to Income Tax on the money sent to London to him? Take a German—the late Prince Batthyany, for instance—who had a large amount of property in Germany, or Austria, or Hungary. Suppose he had property in the funds, on which the dividends were paid in the country in which the funds existed, was it to be considered that he should pay Income Tax on the coupons in that foreign country and in this country as well? It was clear the contention of the right hon. Gentleman could not hold water, and that, in practice, the scheme he proposed must break down. If a person held a small amount of foreign bonds, he could very well have the coupons paid through an English banker and pay Income Tax on them; but where there was a large sum in question the law would be sure to be evaded, and the Income Tax would be sure not to be paid. Seeing how certain it was that the law would be evaded, he thought the right hon. Gentleman would do well to agree to the Amendment.
MR. GORSTsaid, that, according to the doctrine of the Chancellor of the Exchequer, Income Tax must be paid twice over. Let them take the case of a man domiciled in this country who derived the whole of his income from Italian funds, and had only part of the profits remitted to him in this country. According to the Chancellor of the Exchequer, he was hound to pay Income Tax not only on the amount he received 486 here, and had protection for under English laws, but upon the whole of his profits. A member of an Italian Company domiciled in England would not only have to pay Income Tax on his profits in Italy, but, according to the Chancellor of the Exchequer, on the whole of those profits in England also. Take the case of an English subject domiciled in Italy, and the Italian Government demanding a second tax on the income he might derive from funds invested in England which already paid Income Tax in England. An attempt of that kind had been recently made in Italy, and our Foreign Office had intervened on behalf of the British subject domiciled in Italy, and had taken pains to point out to the Italian Government the extreme injustice of their demand. It was fair enough, said the British Government, to charge the British subject domiciled in their country on the whole of the income he derived under the protection of their laws; but it was a monstrous thing to attempt to make the British subject resident in their country pay Income Tax on funds which were not derived under the protection of their laws. No one saw the injustice of the demand more clearly than the British Government.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. CHILDERS)said, he was not aware of the case referred to by the hon. and learned Member. The simple principle on which they proceeded was that the whole trade income should be taxed. If they adopted any other they would have to inquire in each case whether, in fact, the Income Tax had been paid in the foreign country or not.
§ MR. PUGHsaid, it did not seem to him that the Chancellor of the Exchequer had even yet answered the question. The question was this—if a man who had a certain amount of capital invested in foreign securities, and did not receive profits from those securities in this country, should he be liable to pay Income Tax? To his mind, the answer should be, clearly not. The profits received in the foreign country might be left in the hands of a partner and treated as capital, and in such a case it would be most unjust to tax them in England. Was there no difference between money invested in Foreign Loans and money invested in a business in a foreign country?
§ MR. BIGGARconsidered the Chancellor of the Exchequer had not given a sufficient answer to the question put to him by the hon. and learned Gentleman the Member for Chatham (Mr. Gorst). The right hon. Gentleman seemed to think it was very material whether the Income Tax was paid on dividends or on the profits of a business carried on in a foreign country; but he (Mr. Biggar) did not look upon it as an important matter at all, for if a person did not pay Income Tax on the profits he received out of a business in a foreign country he would be sure to pay some other tax in regard to those profits. What was complained of was that they should be taxed twice over. It seemed to him very clear that profits made in a foreign country should not pay Income Tax, unless those profits were really brought into this country. If they were brought to England and spent here, no doubt they ought to be taxed.
§ Question put.
§ The Committee divided:—Ayes 99; Noes 158: Majority 59.—(Div. List, No. 92.)
§ Clause agreed to.
§ Clause 9 (Provisions of Income Tax Acts to apply to duties hereby granted) agreed to.
§ Clause 10 (Provisions as to duty on dividends, &c. paid prior to passing of this Act) agreed to.
§ Clause 11 (Assessment of income under Schedules (A.) and (B.) and of the inhabited house duties for the year 1883–4. 32 & 33 Vict. c. 67.)
§ MR. HICKSsaid, he very much objected to the clause, which appeared to him to be at the root of the objection to the Bill. It introduced an entirely novel principle and practice into the way in which the Income Tax was collected and assessed.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. CHILDERS)I can assure the hon. Member this is the customary clause which is inserted in every Bill of this character. There is nothing novel in it.
§ MR. HICKSsaid, he was very sorry if he had misunderstood the clause; but he wished to know what "assessors and surveyors" of the Income Tax were? 488 He understood what the assessors were—they were officers appointed by the local authorities of the country; but, as he read the clause, the surveyors were officials appointed by the Government. If he had misread the clause, he could only say that he was sorry for having taken up the time of the Committee unnecessarily. If it was not intended to interfere with the present system there was no objection to the clause; but if the present system was to be altered the Committee had a right to call on the right hon. Gentleman the Chancellor of the Exchequer to state distinctly what the alterations were.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. CHILDERS)said, he was sorry to interrupt the hon. Member just now; but the object of his interruption had been to point out that this was the customary clause in the second and third year of the assessment. The first year was the local assessment; but during the second and third years there was nothing but formal work to be done, as provided for under the clause.
§ Clause agreed to.
§ Clause 12 (Provisions of Income Tax Acts to apply to duties to be granted for succeeding year) agreed to.