§ Where any ship has been sold since the fourth day of August, nineteen hundred and fourteen, in such circumstances that the proceeds of the sale are not the profits of a trade or business, the following special provisions shall, if the Commissioners of Inland Revenue so require, be applied in the computation of the liability of the purchaser to Excess Profits Duty in respect of the profits arising from the use of the ship:
- (a) The pre-war standard of profits as respects the ship shall, where the standard of the trade or business of the vendor is a profits standard, be the profits arising from the use of the ship by the vendor or his predecessors in title during the pre-war trade years, and shall be ascertained in accordance with the provisions of the principal Act, but calculated as if the use of the ship were a separate business; and where that standard is a percentage standard the pre-war standard of profits as respects the ship shall be the same as if the ship had not been sold, or, in the case of a ship which was used for the first time after the fourth of August, nineteen hundred and fourteen, shall be calculated by reference to the capital represented by the ship at the date when it was first used; and the pre-war standard of profits of the trade or business of the vendor and of the purchaser shall respectively be reduced and increased accordingly.
- (b) For the purpose of estimating separately the profits arising from the use of the ship, an apportionment shall, where necessary, be made of the total profits of the vendor's trade or business, regard being had to the earning capacity of the ship as compared with the earning capacity of the other assets employed in the trade or business.
- Any appeal under Sub-section (5) of Section forty-five of the principal Act, so far as it involves any question of an apportionment under this provision, shall be to the Special Commissioners.
- (c) The power to require returns under Sub-section (1) of Section forty-four of the principal Act shall include power for the Commissioners of
633 Inland Revenue to require the vendor of the ship to give such information to them and to the purchaser as the Commissioners think necessary in order to enable the provisions of this Section to be carried into effect. - (d)Nothing in Sub-section (3) of Section forty of the principal Act or in paragraph three of Part I. of the Fourth Schedule to the principal Act shall operate so as to enable the purchaser of the ship to obtain any greater relief than could have been obtained by the vendor if the ship had not been sold, other than relief in connection with expenditure by the purchaser on improvements or repairs.
- (e) In the application of Section forty-one of the principal Act to any trade or business whose pre-war standard of profits has been adjusted under this Section any increase or decrease of capital attributable to the purchase or sale of the ship shall be disregarded, and where any such adjustment has taken place both in respect of the sale of a ship and the purchase of another ship for the same trade or business, paragraph six of Part II. of the Fourth Schedule to the principal Act shall not apply.
§ Mr. McKENNAI have a series of Amendments to move on this Clause, but the major part of them are purely drafting Amendments.
§ Amendments made: Leave out the word "proceeds" ["proceeds of the sale"], and insert instead thereof the word "profits."
§ Leave out the words "of the purchaser" ["liability of the purchaser to excess"].
§ In paragraph (a), after the word "profits" ["standard of profits"], insert the words "of the purchaser."
§ Mr. McKENNAI beg to move, after the word "be" ["profits standard be"], to insert the words "calculated by reference to."
The object of this Amendment, and the succeeding one, is this, that if we do not insert the words which I have put on the Paper it might be held that the standard was to be the aggregate of three years' profits, instead of the average profit of the two last of the pre-war years.
§ Amendment agreed to.
634§ Further Amendment made: Leave out the words "by the vendor or his predecessors in title."—[Mr. McKenna.]
§ Mr. McKENNAI beg to move, in paragraph (a), after the word "calculated" ["but calculated as if"], to insert the words "where necessary."
This Amendment is to obviate this Clause being regarded as if it only applied to selling one ship of a fleet of ships, and not to the case of a single ship which might constitute the whole business. The words are intended to meet that case.
§ Amendment agreed to.
§ Mr. McKENNAI beg to move, in paragraph (a), after the word "fourth" ["fourth of August"], to insert the word "day."
This and the following Amendment are more important. The object of the Clause is that the taxable excess in the hands of the purchaser shall be the same as if the vendor had continued ownership, and that principle might be endangered unless there is some provision such as that made in the second of the two Amendments, to insert the words "as the case may require with any adjustments which may be necessary to meet the case of borrowed money, or unpaid purchase money, or other similar matter." For example, the present vendor may in his day have purchased the ship with his own capital, whereas the new purchaser may borrow a large part of the purchase money and be obliged to pay interest thereupon. It is not sufficient in that case that the pre-war standard of the purchaser should be represented by the average war profits made by the vendor. The vendor's profit is not diminished by payment of interest, whereas the purchaser's profit will be so diminished that an adjustment to maintain the true standard will have to be made between the two. Therefore, for these reasons I propose that these words be inserted.
§ Amendment agreed to.
§ Further Amendments made: In the same paragraph leave out the word "accordingly" ["increased accordingly"], and insert instead thereof "as the case may require, with any adjustments which may be necessary to meet the case of borrowed money, or unpaid purchase money, or other similar matters."
§ In paragraph (b) leave out the word "vendor's" ["vendor's trade or business"].—[Mr. MeKenna.]
635§ Mr. McKENNAI beg to move, after the word "business" ["business regard being had"], to insert the words "in which the ship has been used."
This and the next Amendment which is on the Paper deal with the question of the actual earnings as against the earning capacity. The standard is fixed in all cases by reference to the profits actually earned, and not by reference to the earning capacity of the business, and unless this Amendment is inserted we shall not be really carrying out the purpose of the Clause.
§ Mr. McKENNATo the profits of the ship. My hon. Friend has put the question to me rather hurriedly, but I assume it applies to the profits of the ship. I will make inquiry, however.
§ Mr. McKENNAYes.
§ Amendment agreed to.
§ Further Amendment made in the same paragraph: Leave out the words "earning capacity" ["earning capacity of the ship "], and insert the word "earnings."
§ In paragraph (c) leave out the word "the" ["require the vendor"], and insert instead thereof the word "any."
§ In paragraph (e), after the word "been" ["has been adjusted"], insert the words "determined or."
§ In the same paragraph, after the word "such" ["where any such adjustment"], insert the words "determination or."— [Mr. McKenna.]
§ Clause, as amended, ordered to stand part of the Bill.