§ "(1) Where any trade or business is carried on by two or more persons in partnership, and the control and management of such trade or business is situate abroad, the said trade or business shall be deemed to be carried on by persons resident outside the United Kingdom and the said partnership shall be deemed to reside outside the United Kingdom, notwithstanding the fact that some of the members of the said partnership are resident in the United Kingdom and that some of the trading operations of the said partnership are conducted within the United Kingdom.
§ Where any part of the trade or business of a partnership firm whose management and control is situate abroad consists of trading operations within the United Kingdom the said firm shall be assessable in respect of the profits of such trading operations within the United Kingdom to the same extent, and no further, than a person resident abroad is assessable in respect of trading operations by him within the United Kingdom, notwithstanding the fact that one or more of the members of the said firm are resident in 2186 the United Kingdom, provided that for the purpose of assessing any such firm in respect of the profits of the said trading operations within the United Kingdom an assessment may be made on the said firm in respect of the said profits in the name of any partner resident in the United Kingdom."
§ Clause brought up, and read the first time.
§ Motion made, and Question proposed. "That the Clause be read a second time."
§ Mr. WORTHINGTON EVANSI do not know whether the Government propose to explain this new Clause. It would be a very much more convenient course if they did so, as I do not want to lose my right I to speak upon it, and it would be more convenient if the Government told the House whether there is to be any alteration of the present law by this new Clause.
§ Mr. LLOYD GEORGEThe only alteration is to extend the law which is now applicable to companies to partnership firms.
§ Mr. WORTHINGTON EVANSI understand the law with regard to companies is that, notwithstanding that they are registered in England, if the control and management of the company is situated abroad, then the company is treated as a foreign company and only taxed upon the profits, if any, which are made in this country, and are not taxed upon the profits made abroad, and I understand this Clause is intended to extend that to private firms which are not limited companies. I believe there has been a great deal of doubt about that law. It has been the subject of very many decisions, and it would, in my judgment, have been wiser if the Government, when attempting to extend the law itself, put into the Clause some declaration at least as to what the law is. But my quarrel with this Clause is rather a different one. 2187 The exemption from taxation, whether it be for a company or private firm, depends upon whether the control and management of that company or firm is at home or abroad. But there are companies, such as life assurance companies, which are controlled and managed at home, though they carry on business abroad. The particular business is really conducted abroad, but they have possessions which are controlled and managed in this country, because their chief board of directors is here, and their head office is here, although their business may be carried on abroad. I have a manuscript Amendment which I put in, and which I hope presently to move when we come to Committee on the Clause. As I understand from the Chairman that I shall have to discuss the question whether it is in order or not, I had better make a statement of the case for that Amendment now upon Second Reading. Moreover, it will give the Government time to consider the justice of the case. This is what I want to achieve: Accepting the principle that where the control and management is abroad the taxes are only to be paid on the profits made in this country, accepting that principle both as to partnership and ordinary companies, I want the same principle applied to life insurance companies in the only way it can be effectively applied. If you use the words "control and management," they cannot come within this Clause so long as they have a board of directors in this country, though, nevertheless, they carry on quite separate business abroad.
Let me give one case I know of—that of a company which has a large number of assets established, which has branches in France, Italy, Belgium, and Austria, and practically all European countries, and in South Africa and the Argentine and Canada, whose total premium income is about £1,000,000, 85 per cent, of which is derived from foreign business in the various places I have enumerated. It has outside policies of over £24,000,000, 83 per cent, of which are foreign, and foreign shares of £10,500,000, £8,500,000 of which are invested in foreign securities—that is, about 79 per cent, invested in foreign securities. This Clause will not exempt that insurance company because the control and management of the business is legally vested in this country, because it-has its head office and directors in this country; but these assets, which are foreign securities, are necessarily part of the 2188 business of that company, because that company is not allowed to establish and carry on business in any one of the countries I have named unless it deposits large sums of money invested in the national securities of the place where it carries on business, and for that purpose it has invested £4,500,000 in various foreign securities with various foreign Governments or foreign Government departments.
The CHAIRMANI think I quite follow the point. The point is really the reverse of the case dealt with by this Clause. It may be a quite good subject for consideration, but I think it needs a separate Clause.
§ Mr. WORTHINGTON EVANSIf that is your ruling, Mr. Whitley, of course I accept it, but I would like to point this out: If the control and management of the partnership is outside the scope of this Clause, something happens. I suggest that the control and management of life assurance companies in the special circumstances I have stated are outside this country, for purposes comparable to those in which this Clause is enacted, in connection with private partnerships. They have no control or management in respect of these securities, and I ask that this Clause should be extended by words which would bring in life assurance companies—words which are parallel with the words "control and management" used here, applying only to private firms. I suggest exactly the same should apply to life assurance companies, as the object of this Clause provides for private partnership.
The CHAIRMANIt may be quite the same object, but it is an entirely different subject. It is the reverse of what is proposed under this Clause, and the hon. Member must bring up the matter for consideration in some other way.
§ Mr. WORTHINGTON EVANSIf I had put down an Amendment stating that instead of two persons carrying on a partnership, one single person alone ought to come within this Clause, it would be within the Clause; and if I say a company controlled and managed abroad it should come in, it is not the reverse, but it is an explanation, I agree.
The CHAIRMANThe hon. Member has told me he is dealing with a company controlled and managed in this country. It is not an analogous case at all.
§ Mr. WORTHINGTON EVANSThen I must continue my argument, if I may, in 2189 reference not to any specific Amendment, but as objecting to this Clause as not going far enough, and contrast what will be done under this Clause to the advantage of private individuals, and what might be done if the Clause were so worded to the advantage of other individuals. I think that will possibly be in order as a criticism of the Clause.
§ Mr. WORTHINGTON EVANSThis Clause is intended to help private partnership, and I am sure that nothing like such a good case can be made out for private partnership as can be made out for a class of companies with which I must not deal now in detail. The hon. Member for Elgin and Nairn (Sir A. Williamson) had a Clause on the Paper in exactly the same form, and he made a very interesting speech in the earlier stages of this discussion on Clause 1, in which he pointed out the disabilities of Clause 5, and of taxing income which was made abroad. He showed that if that class of taxation continued, then private firms would radicate themselves abroad. He pointed out that that would be very much to the detriment of the trade of this country, and instead of having their head office in England, which would mean giving orders to English manufacturers and employment to English workpeople, they would have their head office somewhere else, and the German drummer would come along and would succeed in getting orders to the detriment of the English people.
I was very surprised to find that the hon. Member put down a Clause which is to have the effect of enabling companies to pass over their control and management abroad, so that the victims of the German drummer are no longer the friends of the English manufacturers, and that they have relief which is not given to firms who have their head office in this country. The hon. Gentleman put this Clause down and the name of the Chancellor of the Exchequer has now been put to the Clause, and so it comes forward as a Government Clause and not the Clause of a supporter of the Government, who is well known as a member of a very large firm of the highest possible repute trading in London, Liverpool, and abroad. The hon. Member has been fortunate in having enlisted the support of the Chancellor of the Exchequer to such a degree, and unlike private Members, he has not to run the risk of putting down a new Clause in his own name. I think if 2190 he had to run the same risk as I have to run on behalf of life insurance companies, he would never have been called upon to move this Clause. The hon. Member has secured the friendly assistance of the Chancellor of the Exchequer, consequently his name disappears and that of the Chancellor of the Exchequer takes his place. This Clause, which is to give work to the German drummer and to lose work which might otherwise come to the British manufacturer and to British working men—
§ Sir A. WILLIAMSONThis proposal has nothing to do with giving orders to the German drummer except to prevent it being done.
§ Mr. WORTHINGTON EVANSI read the hon. Member's speech, and if he will compare what I have said with the record of it he will find that there is not much difference between my recollection and what he actually said. I suggest that while it may have some advantages it is not a Clause which would be anything like as useful in maintaining the credit of the City business, and the strength and the financial supremacy of the City as a Clause which enables those who are going out to seek business like life assurance abroad, and who have to make deposits abroad out of their control and management, but under the control and management of a foreign Government as a condition precedent to setting up their business there—I say this Clause is nothing like as useful as one which enables those people doing life assurance work to have equivalent advantages which these other firms are claiming for themselves. What would happen if that were done would be that the life assurance companies who have to deposit money with foreign Governments would not then have to pay, as under Clause 5, Income Tax on all their dividends and interest received on all those deposit securities, but they would only have to pay upon the profits made in this country. In one case of which I have the details it makes so large a difference that instead of paying a rate of tax on their profits of is. 3d., which is supposed to be the Income Tax, this one company I have in mind will in future have to pay a rate of taxation equivalent to 7s. 4d. in the £. Surely that is a gross injustice which requires careful consideration, and in my judgment ought to be considered before we dispose of a Clause which deals, it is true, with something deserving of a remedy but nothing like so deserving as the case which I have put before the House. There 2191 are some hon. Members who say that the individual trader is a relatively small man. I know the hon. Member opposite will not say that, but some traders are relatively small men, and those who argue that way think that the life assurance people are great capitalists, but that is not so. In this particular company to which I have referred—
§ Mr. LLOYD GEORGEI should like to ask you, Mr. Chairman, whether the point raised by the hon. Member is in order? The hon. Gentleman is entering in great detail into the case of life assurance companies. I have a complete answer to his argument, but I am afraid if I attempt to give it you will be bound to call me to order. This may be a good or a bad Clause, but there are quite fifty other grievances which are also deserving of consideration, and I have enumerated one of them.
§ Mr. WORTHINGTON EVANSWhen one feels that he has no other opportunity of raising something that is important it is very difficult to resist straying from the point. The Government has given us no chance of putting down Clauses, and we are driven by devious means to get in at least a part of our arguments. I recognise that I have strayed a little. I can only say that this Clause as it stands is one which, if it is to put private partnership on the same footing as companies, I am not going to oppose it for a moment. The law is very difficult indeed on this point, and I think the Attorney-General will be prepared to say that in the last few years it has not been improved very much. It is by no means easy to say what is management and what is control. One would have thought if a company were registered here that you would say the management and control was here; but it has been held that that is not so, for you can have the management elsewhere, as long as the board of directors meet and transact the bulk of the business abroad. The same with private partnership which is dealt with here. You are creating difficulties to the traders. It will be extremely difficult for them to know what control and management is, because this Clause permits one of the partners of a business the control and management of which is abroad to live in England. Supposing 2192 he is not controlling and managing the everyday details of the business, but has a preponderating capital interest and makes his policy fit in with the business he is carrying on in England, and he is interested in business in several other foreign places. He is the actual controller of that business. He is very likely the man who is in London the biggest capitalist of the group of firms, and he is very likely the real controller of the firm, although he is not the manager of that firm. It seems to me that the Government is asking Parliament to create a lot of difficulties for the trader in the future, and it would have been far better if this Clause was reconsidered and made much clearer.
§ 7.0 P.M.
§ Mr. CAVEI am not opposed to this Clause by itself, but I wish to point out that it does widen the inequality to which attention was called upon a previous Clause. See what the effect will be! Take the case where partners are resident in England and have a business which is carried on either wholly or partly out of this country, and of which the main control is out of this country. Under this provision those partners will not pay a tax upon their foreign profits, unless, of course, they come to this country. They will escape a considerable charge which otherwise might possibly fall upon them. They will be wealthy men living in this country, but receiving a large income abroad, investing and keeping their income abroad, and thus, they will escape the payment of the tax over here. That is one result of this Clause. Just look at the other side. Take the case of a man who, instead of having a business carried on mainly abroad, has shares in a company carrying on business abroad. There is very little difference between the two cases except in form, but this man under this very Bill will have to pay taxation upon the whole of the profits he derives from that company, even though he invests that money abroad. I fail to see that equity is being done in these two cases, and when you couple this with Clause 5 you have a grave injustice done. That is the only point to which I wish to call attention. I do not know why it is that the Government while they resisted our arguments on Clause 5, and defeated our Amendments, are now themselves bringing in a proposal which will immensely emphasise the strength of the arguments we used. That is the only 2193 point I want to make on the Clause, but I think it is one with which the right hon. Gentleman ought to deal.
§ Sir J. SIMONThe hon. Gentleman below the Gangway who spoke last but one introduced a matter which I confess I should have thought not entirely relevant to this Debate, and he offered as an apology that if he did not do so on this Clause he might not have an opportunity of doing so at all. I can only conclude that he was not here when the hon. Member for Sevenoaks (Mr. H. W. Forster), speaking from the Front Opposition Bench, went over exactly the same ground and received an answer from the Chancellor of the Exchequer on Clause 1. This new Clause has nothing in the world to do with the matter to which the hon. Gentleman refers. It is designed to do nothing more than this, Speaking generally, our Income Tax law, so far as it applies to individuals, applies to those who reside in the United Kingdom. When you endeavour to apply that principle to an incorporated company, the question, of course, arises, how is it to be done, and, though I agree that sometimes disputes arise in particular cases, it is merely because of the difficulty of the subject matter; the principle is fairly plain. Where an incorporated company is controlled and managed in this country, when, as it sometimes said, its head and seat are in this country, then it comes within our Income Tax provisions; and, on the other hand, if its control and management are outside the United Kingdom, it does not come within our Income Tax law.
There does not seem any obvious reason that there should be any different mode of treatment of a partnership which is not incorporated, and consequently we have a provision which has nothing in the world to do with where the trade is carried on, but which has to do with where the control and management of the business is to be found. Since an incorporated company which is controlled and managed abroad escapes our Income Tax, so ought a partnership which is controlled and managed abroad, and the circumstances that one of the members of the partnership, or it may be more than one, reside in this country should not alone result in the partnership being treated as though it came within our Income Tax law, always assuming that the control and management of the partnership are not themselves to be found within the United Kingdom. 2194 It does not seem to me that proposal is open to any criticism on the ground of unfairness or inequality. The hon. and. learned Gentleman the Member for Kingston (Mr. Cave) thinks that we may under this Clause unduly favour certain rich persons who remain here under this Clause and are partners in a concern. The fact that a member of the partnership resides here or there has nothing to do with, it. If the partnership is, in fact, managed abroad, there should not be any reason, why you should not deal with it in the same way as you deal with an incorporated company. If the hon. Gentleman who spoke first cares to look at the Debate of Thursday, 2nd July, he will find almost in so many words that which he has been putting forward—first of all, in a speech by the hon. Member for Seven-oaks, and, secondly, in the reply of the Chancellor of the Exchequer. I can only suppose that the hon. Gentleman did not happen to be here on that ocasion.
§ Mr. PRETYMANI admit that it is a very difficult subject, but I am bound to say that the effect of the right hon. Gentleman's speech upon me has been to remove a doubt within my mind as to whether I was justified in voting against Clause 5. I did vote against Clause 5, although I approved very strongly of the principle of trying to catch for Income Tax purposes money which is placed abroad to avoid being taxed. I voted against the Clause because I thought we should get into greater difficulty even than, the advantage we expected would justify. What does this show? It shows two things. You are already beginning to move these new Clauses to get yourselves, out of difficulties before Clause 5 has begun to operate at all. Here you are distinctly and directly, in the first place, encouraging and, in fact, making it almost obligatory on people a part of whose business is abroad to transfer the management of the business from this country to a foreign country. That is perfectly plain. It is clear that the management of a business which is largely carried on abroad may be transferred to the foreign country with an obvious advantage to that foreign country and a disadvantage to this country. That is the first point, and I need not enlarge upon it, because it must be quite obvious. The next point is this: You are here putting a premium on evasion again. I speak subject to correction, but, as I read it, it is quite plain. Where any trade or 2195 business is carried on by two or more persons in partnership, and the control and management of such trade or business is situated abroad, then that foreign business is to escape. What is meant by that? "Where the control and management of any trade or business." I suppose it simply means this: Where a firm has an office in London or in Liverpool or anywhere else in this country, and also has a centre of trade in three or four ports or trading centres in foreign countries, all it will have to do will be to transfer the nominal management of that part of the business situated abroad into the hands of somebody who will be representing them and resident in that country. You are, as my right hon. Friend has just pointed out, greatly increasing the gross inequalities of the Income Tax which already exist. If you accept Clause 5 this is the kind of thing you will have to do, and I think when we get to the Report stage every Member ought to remember the discussion we have had on this proposal.
The criticism I am making is not so much on this particular Clause by itself as on this Clause combined with Clause 5. We are, by Clause 5, with this Clause tacked on, inviting British subjects to transfer the management of their business to foreign countries. Otherwise, they will be heavily penalised. The honest trader hates subterfuge and tries to maintain that which is the greatest asset of British trade—its high name. I only heard the other day of a case where a valuable and important foreign order was refused by a British firm because it would not give a receipt at a different figure than that at which the goods were really being-delivered. A foreign firm got it because it was willing to give the receipt at a different figure in order to please the purchaser. That is the kind of thing which gives the British trader an advantage, and you are hitting straight at the whole morality of British trade when you introduce a Clause like this. My hon. Friend gave a case where the Income Tax, instead of being Is. 3d., will be 7s. 3d. It is a burden which cannot be borne, and British traders will be absolutely obliged, while they really manage their business in this country, to pretend that they are managing it in a foreign country. I am perfectly convinced that the Chancellor of the Exchequer will have to find some Clause, other than Clause 5, with this Clause 2196 super-added. Here we are discussing under very great difficulties the most far-reaching changes, and I say that the Guillotine Closure removes the responsibility very largely from the House and the Committee and places it upon the Government. I hope that the Chancellor of the Exchequer, with his legal advisers, will really consider the effect of Clause 5 as it is at present drafted, with this Clause super-added, upon British industry, and that when we come to the Report stage he will be able to present some new proposals which will not have the disastrous result which I can see will follow if this proposal is carried into law.
§ Mr. J. WARDI must add my appeal, not necessarily for the withdrawal or the defeat of the Clause as it stands, but certainly for the reconsideration of it on the Report stage. This discussion has called to my mind a very serious debate which occurred in my Constituency. There is one great firm in Stoke-on-Trent who some six or seven years ago, as it was stated before Mr. Chamberlain's Commission, transferred a considerable portion of its business for the purpose of supplying the local trade to German territory, and they have great works there at the present time. There are less charges for land and the capital expenditure is less, and in addition to that the head of the firm—and this almost locates it—stated that he could actually get work done for some 35 per cent, less than he could in this country. Never mind what we may say about Tariff Reform. Here is a firm which has transferred a portion of its work—work that is done by other firms in this country—to Germany for the purpose of getting an advantage in supplying the local trade and for the purpose of making a greater profit. Some three or four years ago they discussed the question of transferring the management and the centre of their business to Germany. It has not done so, but it pays 35 per cent. less in wages there and its competitors are obliged to get over a tariff over which they have not to get because they are now manufacturing in that country, and it is a moral certainty, if you are going to add to that the advantage that they have only to transfer their management to the other side to escape Income Tax on that branch of their business which brings them in the highest profit, that they will do so. If that is really the result of this proposal, it is a very serious one indeed. 2197 I should have imagined that we should have done something to have made it most difficult for a firm to shift its business or to get any fiscal advantage by doing so. I do not mention the firm's name, because I do not want to give them an advertisement, but I believe the case is well known to the Chancellor of the Exchequer. All that they have got to do now apparently is to transfer their centre to Germany where they have constructed works and where they are developing their business; and, whereas now under the present arrangement they have to pay Income Tax not merely on the profits they earn in this country but also on the profit they earn in Germany, the whole of the profit derived from the German works will then cease to pay Income Tax in this country. It is a serious matter, and unless someone can point out that these things cannot occur, I feel I ought not to vote for the Clause. At any rate, if I do vote for it, it will be on the understanding that we get a better explanation of the effects of the Clause, and an undertaking that the matter will he again considered before the Report stage.
§ Mr. MILLSI should like to ask the Chancellor of the Exchequer one question. He gave us to understand that the object of the Clause was to bring partnerships and incorporated companies into line so that the Income Tax laws shall have the same effect on both. I understood him to say that a man with a partner in the business, who said the management, was abroad, would not be liable to Income Tax. I should like to ask if under Clause 5, in case the partnership was broken up and the business was turned into a limited liability company, the partner who had shares instead of profits would be able to receive the dividends, and not be called upon to pay Income Tax upon them? It seems to me, if this is not so, the remarks of the right hon. Gentleman rather lacked point when he said he was bringing partnerships and incorporated companies into line in this matter.
§ Mr. CASSELI should like to endorse what my hon. Friend the Member for Uxbridge (Mr. Mills) has just said. This Clause really provides an avenue by which wealthy people can escape the effect of Clause 5. It provides that if a man, instead of taking shares in an incorporated company, takes shares in an unincorporated syndicate he can get his accumulations from abroad free of Income Tax. It 2198 may be that a syndicate is formed for the purpose of dealing in and holding shares. Suppose you form a syndicate for holding shares, selling and buying them, and collecting the dividends. If you take a share in the syndicate you escape under this Clause, but if you buy the shares of the company direct you come under Clause 5. I submit that both this Clause and Clause 5 should go before the Royal Commission before we make any change. I ventured to urge that argument at the time we were considering Clause 5, and I say that the fact that this Clause is brought forward confirms the strength of my argument. It provides means by which wealthy men can and will escape from the operation of Clause 5. I submit, further, there is a difference between the cases of partnerships and companies. It is much easier to tell where the control of a company is than where the control of a partnership is. I have had, on several occasions, to deal with questions as to the control of companies, and, as a rule, the decisive factor has been the place where the board meets, because then you have minute books and records of the meeting. But where is the control of a partnership? There is nothing so definite or tangible as in the case of a company, and there will be many cases in which it will be perfectly easy to show that the control or management of the partnership is abroad, although the real effective control is in this country. My main objection to this Clause is its effect when read in conjunction with Clause 5.
§ Mr. POLLOCKI hope the Chancellor of the Exchequer will reconsider his adoption of this Clause. What has happened is quite clear. The Chancellor and his draftsmen put forward the Bill and determined to hold by Clause 5, which, imperfectly, is intended to enshrine some method by which you can tax the foreign accumulations of persons now not liable to Income Tax. The hon. Member for Elgin and Nairn (Sir A. Williamson) came forward and said, "I have a useful Clause," and the Chancellor of the Exchequer, who was thinking more about Clause 5, replied, "I will take your Clause and father it." So it came back in his name, and the right hon. Gentleman now finds himself fathering both the Clauses. He will have to select which he will stick to. It is no use having both, and I believe if the right hon. Gentleman will ask his draftsmen they will tell him it is really impossible to work these 2199 two Clauses together. As has been admirably pointed out, the effect of Clause 5 may be to largely destroy this new Clause. If the Committee is minded to stop foreign accumulations avoiding Income Tax, and if that is the purpose of the Government, we must not stultify that by making an easy door by means of which these evasions can take place. No doubt the hon. Member for Elgin and Nairn will feel it hard that the Clause, as to which he entertained such high hopes, should be abandoned, but when the Committee has realised what it is doing—when it realises that it will only stultify Clause 5—I think it will agree that the Chancellor of the Exchequer should undertake to give this matter fuller consideration at his leisure, and when the whole field has been surveyed. So far as the Clause itself goes, apart from Clause 5, I am inclined to agree with the Attorney-General that it is a matter largely of administration and proof. It does not effect in itself a very large alteration of the law, but once you have got Clause 5 it makes a very considerable alteration, and, under these circumstances, I hope the Chancellor of the Exchequer will select which of the two Clauses he will have and will realise that he cannot have both.
§ Mr. J. M. HENDERSONI have considerable doubt about this Clause and what its effect is going to be. I should like to put a case or two to the right hon. Gentleman. A limited company is, at the present moment, subject to taxation, even if its profits are made outside this country. But I have the case of a company in my mind in which I am both a shareholder and an auditor. The money is all in South Africa, and the management of the various branches is also there, but the head office is in London. We pay Income Tax in South Africa, and the shareholders here are subject to Income Tax. The chairman makes a journey every year to South Africa and goes round the branches. He is resident in this country, but spends only about three or four months in England. Yet we are taxed both in South Africa and here. I want to know how this Clause is going to work. Suppose there are two or three partners, each of whom alternately goes out to the various branches and controls the management there. What are you going to do? Are you going to treat the company as if the management is out- 2200 side the United Kingdom? What I want to get at is this. The Clause reads:—
Provided that for the purpose of assessing any such firm in respect of the profits of the said trading operations, within the United Kingdom an assessment may be made on the said firm in respect of the said profits in the name of any person resident in the United Kingdom.That refers only to profits in the United Kingdom. What I want to get at is this: Can these partners, in respect of the profits made on their foreign visit, be brought under Clause 5? I have another case in mind. A friend of mine resides a good deal in this country, but has a large property in Argentina, and is spending a very considerable capital in developing it. He has agents out there, of course. He will presently begin to reap the benefit. The control and management is in Buenos Ayres. Are you going to relieve him of Income Tax? If you are not going to relieve him, I strongly object to your relieving any firm.
§ Mr. J. M. HENDERSONI can only repeat that this is a matter which requires very careful handling, and I certainly do not think this Clause should pass.
§ Mr. BOYTONMay I supplement the question put by the hon. Member for Ux-bridge (Mr. Mills). If I were a member of a limited partnership—a member of a firm sending money from abroad, and the management of that firm was abroad, should I be entitled to receive dividends or income earned abroad without payment of Income Tax under the Limited Partnerships Act?
§ Mr. JOYNSON-HICKSThere are two or three ways in which business is carried on abroad. Say an individual carries on a big business in the Argentine, and owns all the cattle there, but lives in this country. The head of the business will be here. I want to suggest this to the Chancellor of the Exchequer as showing the absurdity of this Clause. If the individual chooses he can create two of his managers in the Argentine as partners, and the management and control of the business in the Argentine will be in the hands of these two persons. Let us see exactly how this Clause will work. In the first case, an Englishman residing here, having a manager in the Argentine, another in Hong 2201 Kong, and another in California, carries on a business, and is taxed on the profits over here. In order to come within this Clause, all he has to do is to make the managers in these different places small partners in the business, and then to travel round. It would be easy to say that the control and management of those businesses were in California, the Argentine and Hong Kong. That would clearly be the case under the existing law if they were partners and not managers. That is the absurd conclusion which would be arrived at under the provisions of this extraordinary Clause.
Another very common way in which business is carried on abroad—it may be either an individual or a partnership in England—it may be in the Argentine, is not to carry it on in the individual name or in the name of the partnership in England, but in the name of separate private limited companies. There would be one for Argentina, another for Hong Kong, and a third in California. That is to-day the commonest way of carrying on extensive businesses throughout the world—separate companies are formed for separate branches. If the original scheme of this Clause is carried out the partners in these different countries will save Income Tax, but if it is a limited company with merely a few people owning all the shares, they have to pay Income Tax, although the money is kept abroad and accumulated abroad. That is under the provisions of Clause 5. If it is a partnership, it would escape under the provisions of this particular Clause. These are three ways in which anybody who has had experience in the City of London knows that businesses are conducted. It shows the ridiculous character of the provisions embodied in this Clause. It is perfectly obvious that this Clause, with Clause 5, should be submitted to the Royal Commission, and that the whole question of the incidence of Income Tax on foreign investments considered together. I am not at all averse to the foreign investments of a rich man, who wants to collect income abroad, being taxed for the benefit of the British community here, but under the provisions proposed by the Chancellor of the Exchequer there is loophole after loophole to enable the rich man, who wishes to transfer his business abroad, getting the advantage of Clause 5.
§ Mr. LLOYD GEORGEI have listened to the Debate, and I am still at a loss to understand whether the Clause is opposed 2202 or supported by hon. Gentlemen opposite. Two or three hon. Gentlemen who have opposed it have prefaced their observations, by saying that they did not oppose it. What I want to know is, are they for giving it a Second Reading, or against giving it a Second Reading? The hon. Member for Uxbridge (Mr. Mills) started by saying "I am not opposed to this Clause."
§ Mr. LLOYD GEORGEThe hon. and learned Member for Kingston (Mr. Cave) said exactly the same thing.
§ Mr. LLOYD GEORGEThe hon. Member for Chelmsford (Mr. Pretyman) also said the same thing, but the whole of their arguments have been directed to opposing the Clause root and branch. The hon. and learned Member for Warwick and Leamington (Mr. Pollock), said that this Clause rendered Clause 5 nugatory. As he voted against Clause 5, that is a very good reason why he should vote for this.
§ Mr. POLLOCKI did not vote against it, because unfortunately there was no Division.
§ Mr. PRETYMANI made a mistake in saying that I voted against it. I intended to say that there was no Division.
§ Mr. JOYNSON-HICKSI did not vote against it.
§ Mr. PRETYMANIt was I who misled the Chancellor of the Exchequer.
§ Mr. POLLOCKI am going to vote against this Clause.
§ Mr. LLOYD GEORGEI am sure this is the first time that the hon. Gentleman (Mr. Pretyman) has misled me. What is the objection of my hon. Friend the Member for Stoke-on-Trent (Mr. J. Ward)? His case was that of a company.
§ Mr. J. WARDOh, no!
§ Mr. LLOYD GEORGEI assumed that it was.
§ Mr. J. WARDIt was a family concern of brothers.
§ Mr. LLOYD GEORGETake a case of that kind. My hon. Friend's objection is based on the fallacy that people are going to destroy their businesses and to change their domicile and place of abode merely 2203 in order to escape Income Tax. They are going to direct their businesses from the places in which it suits them best from the business point of view. They are not going to damage their businesses and move them from one locality to another merely because they can go to one district where they will have to pay a shilling Income Tax, whereas, if they remain here, they will have to pay 1s. 6d.
§ Mr. CASSELSeveral companies have changed their domicile.
§ Mr. LLOYD GEORGEThere may be cases. I am not going into the question whether tariffs affect the matter one way or the other. The hon. Member said they are going to change the place of control and management of their businesses. The idea is that, whereas they now control and manage their business at Stoke-upon-Trent, they will go to Heidelburg or Mannheim, or somewhere of that sort. That is not the case. Business men do not do that. I understand they are very smart business men. These smart business gentlemen who are now making money at Stoke-upon-Trent are not going to take it abroad and live in Germany. They are going to have the control of their business at Stoke-upon-Trent. Why they should live in Stoke-upon-Trent when their business is somewhere else I do not know, except, of course, that they have the privilege of being represented by my hon. Friend. I agree with him they would consider the management and control of their business from the point of view of its efficiency. They are not going to transfer the control to Germany or anywhere else. The control will be where they are. They are the brains of the business, and where the brains are, there the control will be. My hon. Friend need not therefore be alarmed about that particular company. So far as this Clause is concerned, it will not alter the position in the slightest degree, unless they transfer themselves body and soul to Germany, and I cannot imagine them doing that. Now let me take the other point put by the hon. Member for Colchester (Mr. Worthington Evans). It is perfectly true that you can make legal arrangements and set up syndicates which will enable you to evade taxes. I am perfectly well aware of that, and of the fact that it is being done now. It is not done by arrangements abroad, but by arrangements in this country. The 2204 hon. Gentleman went through some very elaborate and ingenious schemes which he explained for the benefit of the taxpayers.
§ Mr. WORTHINGTON EVANSNo, for the benefit of the Chancellor of the Exchequer. I hope you will stop it.
§ Mr. LLOYD GEORGEThe moment it is done, the Inland Revenue can submit a scheme to the House of Commons which will stop all that kind of spider's web, and snap it without the slightest difficulty. I can assure the hon. Gentleman that they are perfectly well aware of these arrangements even now. I do not mind telling him I considered whether it should be stopped this time, and the only reason why it was not done was because I was advised that at the present moment it was not worth while. These ingenious arrangements are entered into by very able people who exercise their brains in this way very often because they have nothing else to do. Able business men have too much to do with making money to waste their time in arrangements of this sort. I can assure him, from the information at my disposal, that there are very few cases at the present moment of this kind. The moment they attain any dimensions he may depend upon it that a Chancellor of the Exchequer, whoever he is, standing at this box, will one day-propose a scheme which will put an end to the practice. You need not go to Canada or Van Dieman's Land to set up that kind of thing. A man might be able to do it, under certain conditions, even here, if it were worth his while. It is not worth a business man's while to bother himself with all sorts of arrangements of that kind in order to be able to escape taxes. All this discussion proceeds upon the assumption that business men are really devoting brains, which they can convert into much more money in other directions, to seeing how they can dodge the tax-gatherer, but it is not worth their while. If the hon. Gentleman had wasted his time, in preparing schemes for dodging the Super-tax and the Income Tax, he would not be the successful solicitor he is. He knew much better than to do that. All this talk about very ingenious ways of getting round this particular Clause are really quite irrelevant. [HON. MEMBERS: "No!"] When they come, we shall have to deal with them. So much for these ingenious arrangements.
§ Mr. CASSELI do not think the right hon. Gentleman has followed my point. It was not merely a point of ingenious arrangements, but I dealt with the ordinary case of taking shares in a syndicate—an unincorporated syndicate—as compared with the case of taking shares in a company.
§ Mr. LLOYD GEORGEWhy should they be unincorporated syndicates? At the present moment they can do it as long as it is a company. All we are doing is to put private firms in the same position as a company. [HON. MEMBERS: "No!"] If that is not the case, then give a Second Reading to the Clause and point out to us in what respects there is a differentiation. That is our proposal. If you can do it at all, you can do it now by means of a limited liability company. All we say is that it is very unfair that a private firm trading in this country should be put at a disadvantage in comparison with a limited liability company. We are not proposing any extension to the law—in any shape or form. All we are proposing is that both should be put in the same position. All the arguments which have been addressed to the Committee in the course of this Debate have been based on the assumption that the real control is here. I do not know anything about the Argentine case. I do not know whether my hon. Friend (Mr. J. M. Henderson) has imagined this case or whether he is acquainted with it. I do not know whether it is a business man who is controlling the business.
§ Mr. HENDERSONNo, he is not.
§ Mr. LLOYD GEORGEThen what on earth has that to do with this Clause?
§ Mr. J. M. HENDERSONHe has got to pay the tax, and the other people will get off.
§ Mr. LLOYD GEORGEIf he has a business which he is controlling here or in the Argentine—
§ Mr. J. M. HENDERSONHe is a single individual, and although the control is there, he gets no relief.
§ Mr. LLOYD GEORGESupposing it were a partnership, and the control were-there?
§ Mr. J. M. HENDERSONHe would then get relief.
§ Mr. LLOYD GEORGEI do not know what the business is. I think it had something to do with investing in land.
§ Mr. JOYNSON-HICKSUndeveloped, land.
§ Mr. LLOYD GEORGEIf that is so, rents are in in Clause 5. I understood the hon. Member really to refer to a gentleman who has invested his money in. the Argentine. I suggest that we should read the Clause a second time, and then we can deal with these points of detail.
§ Mr. PRETYMANI hope that after the right hon. Gentleman's explanation my hon. Friend will vote against this Clause. The Chancellor of the Exchequer will understand that our objection is not to this Clause alone, but to this Clause coupled with Clause 5. I think he has totally failed to deal with the real difficulty, which is that what he has to do in Clause 5 and this Clause is not only to avoid evasion, but he has at the same time to avoid super-taxing businesses which are really foreign businesses, and if taxed upon their rents and profits abroad, and in the words of the Section: are "securities, stocks, shares or rent abroad," their Income Tax would not be raised from 1s. to 1s. 6d., as the Chancellor of the Exchequer said, but as in the actual case given, from 1s. 3d. to 7s. 3d. Although this Clause will do something to clear them, really the combination of the two is an absurdity, and I hope in view of that my hon. Friend will divide against this Clause.
§ Question put, "That the Clause be read a second time."
§ The Committee divided: Ayes, 225;. Noes, 95.
2209| Division No. 177.] | AYES. | [7.47 p.m. |
| Abraham, William (Dublin, Harbour) | Beale, Sir William Phipson | Boyle, Daniel (Mayo, North) |
| Adamson, William | Benn, W. W. (T. Hamlets, St. George) | Brady, Patrick Joseph |
| Addison, Dr. Christopher | Bentham, George Jackson | Brocklehurst, W. B. |
| Allen, Arthur A. (Dumbartonshire) | Bethell, Sir J. H. | Bryce, J. Annan |
| Arnold, Sydney | Black, Arthur W. | Buckmaster, Sir Stanley O. |
| Baker, Harold T. (Accrington) | Boland, John Pius | Burns, Rt. Hon. John |
| Baker, Joseph Allen (Finsbury, E.) | Booth, Frederick Handel | Burt, Rt. Hon. Thomas |
| Barnes, George N. | Bowerman, Charles W. | Byles, Sir William Pollard |
| Carr-Gomm, H. W. | Jardine. Sir J. (Roxburgh) | Ponsonby, Arthur A. W. H. |
| Cawley, Sir Frederick (Prestwich) | John, Edward Thomas | Pratt, J. W. |
| Cawley, Harold T. (Lanes., Heywood) | Johnson, W. | Price, C. E. (Edinburgh, Central) |
| Chancellor, Henry George | Jones, Rt. Hon. Sir D. Brynmor (Swansea) | Pringle, William M. R. |
| Chapple, Dr. William Allen | Jones, Edgar (Merthyr Tydvil) | Raffan, Peter Wilson |
| Clancy, John Joseph | Jones, H. Haydn (Merioneth) | Rea, Rt. Hon. Russell (South Shields) |
| Clough, William | Jones, J. Towyn (Carmarthen, East) | Reddy, Michael |
| Clynes, John R. | Jones, Leif (Notts, Rushcliffe) | Redmond, John E. (Waterford) |
| Collins, Sir Stephen (Lambeth) | Jones, William (Carnarvonshire) | Redmond, William (Clare, E.) |
| Compton-Rickett, Rt. Hon. Sir J. | Jones, William S. Glyn- (Stepney) | Rendall, Athelstan |
| Cornwall, Sir Edwin A. | Joyce, Michael | Richardson, Albion (Peckham) |
| Cotton, William Francis | Kellaway, Frederick George | Richardson, Thomas (Whitehaven) |
| Cowan, W. H. | Kelly, Edward | Roberts, Charles H. (Lincoln) |
| Crooks, William | Kennedy, Vincent Paul | Roberts, George H. (Norwich) |
| Crumley, Patrick | Kilbride, Denis | Roberts, Sir J. H. (Denbighs) |
| Cullinan, John | King, Joseph | Robertson, Sir G. Scott (Bradford) |
| Davies, Timothy (Lincs., Louth) | Lambert, Rt. Hon. G. (Devon, S. Molton) | Robertson, John M. (Tyneside) |
| Dawes, James Arthur | Lambert, Richard (Wilts, Cricklade) | Robinson, Sidney |
| De Forest, Baron | Law, Hugh A. (Donegal, West) | Roch, Walter F. (Pembroke) |
| Delany, William | Lawson. Sir W. (Cumbr'ld, Cockerm'th) | Roche, Augustine (Louth) |
| Dillon, John | Leach, Charles | Roe, Sir Thomas |
| Donelan, Captain A. | Lewis, Rt. Hon. John Herbert | Rowlands, James |
| Doris, William | Low, Sir Frederick (Norwich) | Russell, Rt. Hon. Thomas W. |
| Duffy, William J. | Lundon, Thomas | Samuel, J. (Stockton-on-Tees) |
| Duncan, C. (Barrow-in-Furness) | Lynch, Arthur Alfred | Scanlan, Thomas |
| Edwards, Sir Francis (Radnor) | Macdonald, J. Ramsay (Leicester) | Scott, A. MacCallum (Glas., Bridgeton) |
| Esmonde, Dr. John (Tipperary, N.) | Macdonald, J. M. (Falkirk Burghs) | Sheehy, David |
| Esmonde, Sir Thomas (Wexford, N.) | McGhee, Richard | Sherwell, Arthur James |
| Esslemont, George Birnie | MacNeill, J. G. Swift (Donegal, South) | Simon, Rt. Hon. Sir John Allsebrook |
| Falconer, James | MacVeagh, Jeremiah | Smith, Albert (Lanes., Clitheroe) |
| Farrell, James Patrick | M'Callum, Sir John M. | Smith, H. B. Lees (Northampton) |
| Fenwick, Rt. Hon. Charles | M'Curdy, C. A. | Smyth, Thomas F. (Leitrim, S.) |
| Ffrench, Peter | McKenna, Rt. Hon. Reginald | Strauss, Edward A. (Southwark, West) |
| Field, William | Marks, Sir George Croydon | Sutherland, John E. |
| Fitzgibbon, John | Marshall, Arthur Harold | Sutton. John E. |
| Flavin, Michael Joseph | Meagher, Michael | Taylor, Theodore C. (Radcliffe) |
| Gelder, Sir W. A. | Meehan, Francis E. (Leitrim, N.) | Taylor, Thomas (Bolton) |
| George, Rt. Hon. D. Lloyd | Meehan, Patrick J. (Queen's Co., Leix) | Tennant, Rt. Hon. Harold John |
| Gladstone, W. G. C. | Millar, James Duncan | Thomas, J. H. |
| Glanville, Harold James | Mollay, Michael | Thorne, G. R. (Wolverhampton) |
| Goldstone, Frank | Molteno, Percy Alport | Thorne, William (West Ham) |
| Grey, Rt. Hon. Sir Edward | Montagu, Hon. E. S. | Toulmin, Sir George |
| Griffith, Rt. Hon. Ellis Jones | Morgan, George Hay | Trevelyan, Charles Philips |
| Gwynn, Stephen Lucius (Galway) | Morison, Hector | Walsh, Stephen (Lanes., Ince) |
| Hackett, John | Morton, Alpheus Cleophas | Ward, John (Stoke-upon-Trent) |
| Hall, Frederick (Yorks, Normanton) | Muldoon, John | Wason, Rt. Hon. E. (Clackmannan) |
| Hancock, John George | Munro, Rt. Hon. Robert | Wason, John Cathcart (Orkney) |
| Harcourt, Rt. Hon. Lewis (Rossendale) | Murray, Captain Hon. Arthur C. | Webb, H. |
| Harcourt, Robert V. (Montrose) | Neilson, Francis | White, J. Dundas (Glasgow, Tradeston) |
| Hardie, J. Keir | Nolan, Joseph | White, Patrick (Meath, North) |
| Harmsworth, Cecil (Luton, Beds) | Nugent, Sir Walter Richard | Whitehouse, John Howard |
| Harvey, A. G. C. (Rochdale) | O'Brien, Patrick (Kilkenny) | Whittaker, Rt. Hon. Sir Thomas P. |
| Harvey, T. E. (Leeds, West) | O'Connor, T. P. (Liverpool) | Whyte, Alexander F. (Perth) |
| Haslam, Lewis | O'Doherty, Philip | Wilkie, Alexander |
| Hayden, John Patrick | O'Donnell, Thomas | Williams, Aneurin (Durham, N.W.) |
| Hayward, Evan | O'Dowd, John | Williams, Penry (Middlesbrough) |
| Henderson, Arthur (Durham) | O'Kelly, Edward P. (Wicklow, W.) | Williamson, Sir Archibald |
| Henderson, J. M. (Aberdeen, W.) | O'Malley, William | Wilson, Hon. G. G. (Hull, W.) |
| Henry, Sir Charles | O'Neill, Dr. Charles (Armagh, S.) | Wilson, Rt. Hon. J. W. (Worcs., N.) |
| Herbert, General Sir Ivor (Mon., S.) | O'Shaughnessy, P. J. | Wilson, W. T. (Westhoughton) |
| Hewart, Gordon | O'Sullivan, Timothy | Winfrey, Sir Richard |
| Higham, John Sharp | Outhwaite, R. L. | Wing, Thomas Edward |
| Hobhouse, Rt. Hon. Charles E. H. | Parker, James (Halifax) | Young, William (Perthshire, East) |
| Hodge, John | Parry, Thomas H. | Yoxall, Sir James Henry |
| Hogge, James Myles | Pearce, Robert (Staffs, Leek) | |
| Holmes, Daniel Turner | Pease, Rt. Hon. Joseph A. (Rotherham) | TELLERS FOR THE AYES.— |
| Hudson, Walter | Phillips, John (Longford, S.) | Mr. Iliingworth and Mr. Gulland. |
| Hughes, Spencer Leigh | Pirie, Duncan V. | |
| NOES. | ||
| Ashley, Wilfrid W. | Campbell, Captain Duncan F. (Ayr, N.) | Crichton-Stuart, Lord Ninian |
| Baird, John Lawrence | Campion, W. R. | Currie, George W. |
| Baldwin, Stanley | Carlile, Sir Edward Hildred | Dalrymple, Viscount |
| Barnston, Harry | Cassel, Felix | Dickson, Rt. Hon. C. Scott |
| Bathurst, Charles (Wilts, Wilton) | Cator, John | Duke, Henry Edward |
| Beach, Hon. Michael Hugh Hicks | Cave, George | Du Pre, W. Baring |
| Bentinck, Lord H. Cavendish | Cecil, Evelyn (Aston Manor) | Fisher, Rt. Hon. W. Hayes |
| Bird, Alfred | Cecil, Lord Hugh (Oxford University) | Flannery, Sir J. Fortescue |
| Blair, Reginald | Cecil, Lord R. (Herts, Hitchin) | Fletcher, John Samuel |
| Boyton, James | Chaloner, Colonel R. G. W. | Forster, Henry William |
| Bridgeman, William Clive | Clyde, J. Avon | Gardner, Ernest |
| Burn, Colonel C. R. | Courthope, George Loyd | Gastrell, Major W. Houghton |
| Butcher, John George | Craik, Sir Henry | Gilmour, Captain John |
| Glazebrook, Captain Philip K. | MacCaw, William J. MacGeagh | Spear, Sir John Ward |
| Goldman, C. S. | Macmaster, Donald | Stewart, Gershom |
| Gretton, John | Neville, Reginald J. N. | Strauss, Arthur (Paddington, North) |
| Guinness, Hon. Rupert (Essex, S.E.) | Newman, John R. P. | Swift, Rigby |
| Hall, Frederick (Dulwich) | Newton, Harry Kottingham | Talbot, Lord Edmund |
| Hamilton, C. G. C. (Ches., Altrincham) | Nield, Herbert | Thomas-Stanford, Charles |
| Hardy, Rt. Hon. Laurence | Orde-Powiett. Hon. W. G. A. | Tickler, T. G. |
| Harris, Henry Percy | Perkins, Walter Frank | Walker, Colonel William Hall |
| Hope, James Fitzalan (Sheffield) | Peto, Basil Edward | Weigall, Captain A. G. |
| Hope, Major J. A. (Midlothian) | Pretyman, Ernest George | Weston, Colonel J. W. |
| Horner, Andrew Long | Pryce-Jones, Colonel E. | Wheler, Granville C. H. |
| Hunt, Rowland | Rawlinson, John Frederick Peel | White, Major G. D. (Lancs., Southport) |
| Jardine, Ernest (Somerset, East) | Rees, Sir J. D. | Wilson, Captain Leslie O. (Reading) |
| Joynson-Hicks, William | Royds, Edmund | Wolmer, Viscount |
| Lane-Fox, G. R. | Rutherford, John (Lanes., Darwen) | Worthington Evans, L. |
| Lewisham, Viscount | Rutherford, Watson (L'pool, W. Derby) | Yate, Colonel C. E. |
| Lloyd, George Butler (Shrewsbury) | Salter, Arthur Clavell | |
| Locker-Lampson, G. (Salisbury) | Sanders, Robert Arthur | TELLERS FOR THE NOES.— |
| Lowe, Sir F. W. (Birm., Edgbaston) | Sanderson, Lancelot | Mr. Mount and Mr. Pollock. |
| Lyttelton, Hon. J. C. | Sharman-Crawford, Colonel R. G. |
Question. "That the Clause be added to the Bill," put, and agreed to.
§ Mr. WORTHINGTON EVANSI beg to move, to leave out the words "that some members of the said partnership are resident in the United Kingdom and"
With the omission of these words the Clause will give relief to all firms so long as the partners are not resident here. The Chancellor of the Exchequer just now in 'dealing with this very point, said that people were not going to go abroad in order to avoid Income Tax, and the gentlemen at Stoke-upon-Trent who had their business were not going to live in Heidelberg in order to avoid Income Tax, but that the control would be where those people lived.
The CHAIRMANI must really ask the hon. Member a question. If none of the members of the partnership were to reside 'in the United Kingdom, how could they be taxed?
§ Mr. WORTHINGTON EVANSI do not know how they could be taxed.
§ 8.0 P.M.
§ Mr. WORTHINGTON EVANSI am not going to provide the means of taxing them. I could alter it to bring it in order and move to omit the word "some" and insert the word "one," so as to prevent it applying if two, three, or four partners are resident in the United Kingdom. 'There is very good ground for that, because the Chancellor of the Exchequer said that the control of the partnership would be where the partners resided, and if you allow this Clause with the partners residing here you will make it an instrument for evasion, because if, as the Chancellor of the Exchequer says, the real control will be where the partners reside, the whole affair will be a colourable attempt to evade the provisions of 2210 Clause 5. The real reason I want to move this is in order to get from the Chancellor of the Exchequer a definite answer to a very simple question. If a man was a member of one of these partnerships which are to be free from tax, is it not the case that he would pay no tax upon the profits in the partnership except that on the profits which arise from trade in the United Kingdom, or except such part of the profit as was remitted to the United Kingdom? I believe that is undoubtedly the case. If that individual converted that private business into a limited company—I now want the Chancellor of the Exchequer to answer the same question—that limited company would only be taxed upon the profit that it made while trading in this country—that is, so far as the limited company is concerned, always assuming that the control is abroad. Now I want to take the case of a former partner who is now a shareholder in a limited company, and who lives in this country. Upon what income does he have to pay tax? Does he not, in fact, have to pay tax upon the whole of the dividends which are paid upon the shares that he holds in that limited company, whether those dividends are brought into this country or not? To make it even plainer, I will put it this way: Supposing while he was a partner his share of the total profits of that firm was £2,000, of which £500 arose from trading in this country. As a partner he would pay tax on £500, and he would not pay tax on the other £1,500 unless it was brought into this country. Supposing the dividends on the shares which he holds when the concern is converted into a limited company amount to £2,000—exactly the same figure—upon what would he pay the tax? Is it not the case that he would pay on £2,000, whether he brought it into the country or not? If that 2211 is the case—as I feel certain it is—how can the right hon. Gentleman justify the taxation of one man because he is a member of an unlimited partnership and not the other man because he is a member of a company, the subject-matter of the business being exactly the same?
§ Mr. JOYNSON-HICKSI wish to follow up the point put by my hon. Friend (Mr. Worthington Evans) by putting a slightly smaller variation in the conduct of the partnership business. Supposing that, as frequently happens in connection with big businesses, a branch house is converted into a limited liability company, the whole of the shares in that branch being, of course, held by the partnership here. If the partnership firm, say, a big firm in London, which has four branches in different parts of the world for convenience, convert one branch into a limited company, say, a branch in Hong Kong, am I not right in saying that under this Clause the profits of the business which remains part of the unregistered partnership would have to pay Income Tax?
§ Sir A. WILLIAMSONThe hon. Member for Colchester (Mr. Worthington Evans) must remember that while I am a foreign trader, I am also a representative in the House of Commons of a kind of commerce that is of importance to the country. It is difficult for me to speak on this question without being suspected of acting from personal motives. I assure the House that is by no means the case, because this is a matter of vital interest to the country, and not merely to me as an individual. Many points can be raised with respect to the incidence of the Income Tax, but I wish to point out that there is one broad fact which it would be well for the House of Commons to have in mind. We have been speaking of the incomes of individual residents in this country, but we have been entirely losing sight of the fact that firms trading abroad have partners living abroad who are not British subjects at all. You have some of these firms in London with ramifications all over the world. If by reason of that you are going to impose British Income Tax on all the partners who reside abroad, both Britishers and foreigners, you do cause a sense of injustice to arise in the minds of those partners, and you because pressure to be brought to bear on 2212 the heads of the house in England to sever the connection that exists between the firm here and the branch abroad. It appears to me that that would be a disadvantage in the long run to British trade. I think the hon. Member for Colchester will agree that that would be so. There is another point. It is suggested that a company could be made instead of a firm. So it could, and it would be an advantage to the capitalists here if the business were a company instead of a firm from this point of view. If it were a company in the United States or the Argentine, then the partner would have to pay Income Tax on the dividends declared, and not on the whole profits. But if it is a company in this country it has to pay not only on the profits available for dividends, but on the gross profits, which, as the House knows, are very much in excess of the net profits.
I take the cases of firms engaged in more or less hazardous enterprises. They put large sums of money into speculative businesses. They put, say, £100,000, into a factory, or it may be a gold mine, and it turns out disappointing. When they come to make up the balance-sheet the partners say, "This has proved to be a failure and we have to write off £100,000. We have lost in this venture." The British Income Tax officials will not allow you to write off that amount. They say, "That is a loss of capital." They are therefore, penalised in that respect as compared with the position of those who are merely shareholders in a foreign company. I think a firm should be put in the same position as a company in the light of the Egyptian case. If they turn themselves into companies, I think there is a disadvantage in so doing, but I believe also the partners who were shareholders would not have to pay the tax. It would be very inconvenient, and I think it would in the end be a disadvantage, because you would be putting more and more the initiation and control at the other end of the world. I pointed out the other day that if you separate foreign companies from the parent institutions in this country, you always tend to the independence of the foreign companies or firms and to their doing business in any part of the world, and you do not get the trade to British houses as you do by maintaining the link. That is what I had in my mind when I gave notice of an Amendment on the subject. I did not know that the Chancellor of the 2213 Exchequer was putting down an Amendment. Really this is not a personal matter, because as a matter of fact it would not affect me very greatly. It affects my foreign partners greatly.
§ Mr. BUTCHERI would ask the Chancellor of the Exchequer to answer the question put by my hon. Friend (Mr. Worthington Evans). It should be remembered that there is Clause 5 in the Bill. If this new Clause stood alone it would be very much simpler, but Clause 5 does create a very serious difficulty, and certainly it would be satisfactory to many of us to hear what answer the right hon. Gentleman has to give.
§ Mr. LLOYD GEORGEI can assure the hon. Member for Colchester that if I did not answer his question it was through no discourtesy to lam. The matter has been explained better by my hon. Friend behind me (Sir A. Williamson). We discussed the whole of this point at very great length in a previous Debate, and the Attorney-General gave an answer. I do not think, seeing that we have got other very important Amendments on the Paper by hon. Members on the other side, I should go into the whole question again, because I know from experience what will happen. If I repeat the arguments which have been advanced before, the answers to these arguments will be repeated by half a dozen hon. Gentlemen on the other side with great rhetorical force.
§ Mr. WORTHINGTON EVANSThe right hon. Gentleman misunderstands me. I do not wish to argue the whole thing again. I asked one specific question, and I hope the right hon. Gentleman will give me an answer.
§ Mr. LLOYD GEORGEIt is perfectly true that you have to pay under Clause 5 whether the money is brought over to this country or not. There is much greater difficulty with regard to private partnerships than a company. The private partnerships do not declare dividends, and there is much greater difficulty if the money is not brought over to this country in tracing it. In the case of a company a shareholder would be paying in respect of the dividends received from that company. In the case of a private firm the partner pays on the profits.