§ Clause seven of Part I. of the Fourth Schedule of the Finance (No. 2) Act, 1915, shall be read as if the following words were added at the end thereof: "Provided that where on a sale by a company of its business and assets to a new company, the holders of a majority of the shares of the old company are also shareholders in the new company and the profits of the new company are applied in the business, then in estimating the profits of the new company a deduction shall be allowed in respect of any losses made by the old company equal to the amount of such profits so applied in the same manner as if such losses had been made by the new company."—[Mr. Peto.]
§ Brought up, and read the first time.
§ "Where in the case of any trade or business—
- (a) the percentage standard is adopted as the pre-war standard of profits; and
- (b) the net result of the trade or business during the three last pre-war trade years has shown a loss; and
- (c) any part of the profits has been applied in extinction of that loss; then in estimating the profits a reduction shall be allowed equal to the amount of profits so applied.
§ "That Sub-section was put in, after very considerable debate, to meet the obvious case in which the Excess Profits Tax would operate with great hardship where the losses had been incurred by the business or company, and which it was necessary to make good out of profits before the capital of the company was sufficiently worked up again to enable it to operate successfully. It has been pointed out to me that there are cases in which that Clause, which I have read, does not apply, because such losses have been incurred by the company or business and have involved their reconstruction, though the majority of the shareholders of the new company were the shareholders of the old company—when, in effect, the business is the same that has to be carried on, and when it) is only owing to the 1362 reconstruction of the company that technically it could not get the advantage of that Section 7 of the Fourth Schedule of the Act of 1915. Therefore, I want, in pursuance of the policy laid down so ably a couple of nights ago by my hon. and learned Friend the Member for Warwick and Leamington to see whether, although we cannot entirely avoid obvious cases of hardship of the Excess Profits Tax, we can do something, particularly where they operate in only a few cases, for really the cost to the Exchequer would be practically nothing. Therefore, I desire to move my new Clause. The wording may sound rather involved, but if the hon. Gentleman can suggest a simpler form of words to express what I want I shall be glad. What I want is to allow that section of the Fourth Schedule to operate in the case where a business is carried on by the new company, being the same business and the same shareholders. I hope my hon. Friend will accept the principle of the Amendment, and recognise that, though a very small matter, it will remove a hardship in a few cases which is a very serious detriment to business.
§ Mr. BALDWIN
One of the most difficult things to do—and I am sure my hon. Friend will agree—is to regulate by Statute hard and fast cases, and those that are on the border line. That is what he is asking us to do in this case. It is perfectly clear, and we are all agreed as it stands at present that where a business changes hands, those who step into the shoes of the old proprietor should not be in a position to write off the losses which have been made in the past, because it is obvious that the price at which they acquire the assets does not burden them with the losses which, have gone before. They actually buy the assets at a lower price because all these losses have been incurred. But there are many cases of reconstruction—and it is possibly some such case as this that my hon. Friend has in mind—where it is really very difficult to lay down a hard and fast line, or invent any words always to make it clear whether or not the continuity of the business has been broken. I must feel, after looking with some care into this matter, that we have no alternative but to leave the Clause in the Fourth Schedule as it stands. We must leave these cases to be dealt with on their merits as they arise. I would remind my hon. Friend that there is an appeal in these matters either to the 1363 local Commissioners or to the Special Commissioners, and as my right hon. and learned Friend by my side reminds me there is also an appeal on the question of law to the Courts. It seems to me that with these safeguards there is sufficient provision to deal with these border-line cases. But I am very much afraid that if we try to rectify by Statute what my hon. Friend considers, perhaps justly, as a grievance, we should, I think, make what is at present a modest confusion worse confounded.
§ Motion and Clause, by leave, withdrawn.
§ The DEPUTY-CHAIRMAN (Mr. Maclean)
With regard to the two Clauses in the name of the hon. Member for the Tradeston Division of Glasgow (Mr. Dundas White), the first is in order, but the second (Valuation of Certain Lands for the Purposes of Income Tax under Schedule A and Increment Value Duty) involves a charge, and, therefore, cannot be moved.