§ A non-resident British-Indian, Dominion, or Colonial firm or company shall not be chargeable to Income Tax in respect of any profits or gains arising from the sale wholesale in the United Kingdom of the produce of British India or of any British Dominion or Colony.—[Mr. A. Shaw]
§ Brought up, and read the first time.
§ Mr. A. SHAWI beg to move,
That the Clause be read a second time.I would like to make an appeal to the right hon. Gentleman. We are now engaged upon some extremely important new Clauses, and it is after 11.30 at night. I do hope that the Chancellor of the Exchequer will see his way to report Progress, so that we might continue the discussion of these—which would not take a very long time—under much more favourable circumstances and with more justice to the House.
Mr. CHAMBERLAINI am very sorry. My desire is not to discuss these questions at this time, but it is in the recollection of the Committee that we came to an agreement to finish this stage to-night. It was then anticipated that we should finish at a reasonable hour. It was an agreement made in the face of the House. The Adjournment Motion has interfered, and our deliberations are necessarily more prolonged than we anticipated. My hon. Friend must not hold me responsible for that. I must ask the Committee to take this Bill now.
§ Mr. SHAWThe proposal which was made and the agreement which was arrived at proceeded on the assumption that two full Parliamentary days would be available, and that has not been the case. The object of this new Clause is to remove a very serious interference with inter-Imperial trade. It deals, and deals only, with the position of non resident firms in other parts of the Empire so far as it concerns the sale of their products in the market of the Mother Country. What is the present position of, say, a purely Canadian business firm which sends produce to the London market? It may prefer to send its produce here rather than across the boundary to the United States, and to take in return a cargo of British goods rather than a return load from the United States. If it so prefers, every inducement should be held out to it to pursue that course, and 540 not every impediment put in its way as is at present being done. In order to establish a regular course of business such a firm will naturally employ a reputable firm of agents in this country to act for it in the disposal of its produce here. It is to the advantage of inter-Imperial trade that there should be such a regular channel. Supposing a Canadian firm employs regular agents and such a regular channel of Imperial trade is opened up. This is what the right hon. Gentleman's servants are doing for the first time in the history of this country in this year 1919. The tax gatherer comes down and demands 6s. in the £ on the gains which the overseas firm has made for its shareholders on the sale of its produce here. That is being done under cover of Section 31 (2) of the Finance Act (No. 2), 1915, which reads as follows:
A non-resident person shall be chargeable in respect of any profits or gains arising, whether directly or indirectly, through or from any branch, factor ship, agency, receivership, or management, and shall be so chargeable, under Section 41 of the Income Tax Act, 1842, as amended by this Section, in the name of the branch, factor, agent, receiver or manager.The effect of that Sub-section is that if the Colonial firm chooses out a well-established and respectable agency house in the City of London, and through it sets up a regular course of business with this country, it is going at once to be penalised for doing so. If our cousins across the seas wish to trade with this country any longer, they have got to choose out irregular channels. They have got to avoid setting up regular channels. If, under another Sub-section of the same Section that I have read out, they go to brokers or commission agents, they escape scot-free. The great inducement, therefore, is not to go to this market, but to some other market in some other country. Sub-section (6) of the same Section in the Finance (No. 2) Act. 1915, clearly lays down, that if they put the business, not through regular agents, but through commission agents or brokers, they escape scot-free. I venture to think that is an almost unbelievable anomaly, and the seriousness of it has not been appreciated by business people until within the last few weeks, when attempts have been made to bring it into operation. It is true that Section 25 of the Finance Act, 1918, gives to the regular agent the option of paying Income Tax on the profits which he would have made if he had 541 not been an agent at all, but had been a merchant buying and selling produce on his own account.The whole tendency is to damage this country as a regular market for Imperial produce, and at the same time throw out of business altogether well-established agency concerns by making it a disadvantage for firms in the Colonies or India to employ them at all. The market of this country used to be the great entrepÔt of the world, and even if those days are past, I am quite sure the Chancellor of the Exchequer agrees we ought to try to make it remain the great enter pot of Imperial trade. At this very moment various Income Tax assessors in the country, acting, it may be, on instructions from headquarters, are imposing in new and, I venture to think, hitherto unheard-of directions a perfectly terrible form of new double Income Tax within the Empire—a line of policy which, if the House of Commons allows it to be pressed, will drive the produce of the Colonies, the Dominions and India more and more to other markets, which at the present time are only too ready to receive it, and which will most seriously raise the cost of our own Imperial produce to the consumers of this country. The amount of money which the Exchequer will gain by this tax is very little. It is a mere pittance in comparison with the damage which my right hon. Friend will cause to vital Imperial trade interests, which, I say quite sincerely, I know he has really at heart. I would like to give an example of this new procedure by a Government which, we have to remember, is committed to Imperial Preference. It has given a preference to Indian tea, unasked and uninvited by the growers of Indian tea. But there is another side to the picture. Here is a letter from the Inland Revenue to a very eminent firm. I have nothing to do with this firm nor any personal interest in it, and it does not matter to me whether it is this way or the other. The letter is dated 30th May this year, and is to an eminent firm in the City who act as agents for a native Indian tea company with native Indian shareholders out in India. It says:
Gentlemen, it would appear that by virtue of the Articles of Association," you hold the position of London agents of this company, for the purpose of the sale of tea in London, etc. It would therefore appear that the profits derived in this country for such sales are assessable in your name.That is, they want to tax this Indian company in the name of the agents. 542I shall be glad therefore if you will let me have the particulars of the amount of the sales elected by you from the 18th January,1918, to the 5th April, 1918, and from that date to the 5th April, 1919, or for any other period for which particulars are ascertainable by you, and also particulars as to the cost of production, etc., of this tea, in connection with which I shall be glad to nave the accounts of the company.As far as any of the profits of this Indian tea company come to share holders in this country, they are taxed. As far as the agents commission is concerned, they pay taxation to the full upon that. This is an attempt to get behind the agents at the company, and to tax the native shareholders of an Indian company and the Canadian shareholders of a Canadian company. At this moment the native shareholders in India are faced with an extension of the Income Tax in that country which will be imposed on their undertakings, and, of course, rather than submit to this new and hitherto unheard-of form of double Income Tax within the Empire, which will wipe out the fund which is available for the extension of their gardens in India, they will cast longing eyes at that other great market of Europe—1 mean Amsterdam, which is the really serious competitor with London for the leadership of this business throughout the world, and where they can employ a regular agency to carry on business without the disadvantages rapidly becoming associated with the regular course of business in the Motherland by Canadian or by Indian firms. Or. instead of doing a regular business here, they may do a hand-to-mouth business through brokers and commission agents. If they do that under this extra ordnary piece of hasty war-time legislation, they get off scot-free, and the business will drift into the hands of those clever foreigners who are always hanging about the market to pick up this class of business. I am told the Germans are experts at this, and we are driving the business of our own Colonies out of the hands of regular agents into the hands of all sorts of other people.I venture to suggest that this is a most serious menace to Imperial trade. I do not think there has been anything quite so serious as this since the transactions which resulted in the loss of the American Colonies. When the Empire at large wakens up to the fact that now, in 1919, for the first time since those black years of the eighteenth century, a deadly blow is being aimed at purely Colonial businesses in an entirely new direction, a great deal of the fine effect which has been 543 produced by the War will be taken away and Preference will be seen to be a sham and a hollow mockery. Not that the Chancellor of the Exchequer considers that. He was kind enough to see me about this matter the other day, and I thanked him for his courtesy. His reply to me then was, as it will be tonight, that although he was sympathetic there was an Income Tax Commission sitting—we have heard a good deal about that Commission. When will it report This thing is being started now. for the first time, and it may be too late to avert the consequences of this deadly blow to our Imperial commerce, unless the Committee insists on putting into this Bill a provision which will safeguard, at any rate for the next financial year, the advantages of the existing situation. Now more than at any other time, we require to have the channels of our Imperial trade broad and deep and clearly marked. We ought not to choke and block those channels; we ought not to thwart and divert the stream of our Imperial trade. What is the use, I ask my right hon. Friend, of giving paper preference to the Imperial Dominions, if at that very moment the servants of the Government are engaged in a new campaign against Colonial businesses which have had the temerity, through regular agents, to open Imperial trade with the Mother Country? The Chancellor of the Exchequer invites them to send their products here—and I do not doubt for a moment that he is perfectly sincere—but when they come here and they set up their businesses through regular agents, his minions warn them off the course. We shall be told that there is an Income Tax Commission sitting and the Government, in the face of this injustice, in favour of which they cannot argue, are going to shield themselves behind this Commission. If the matter is sub-judice, why do not they keep their servants from launching, at this moment, a new attack against overseas businesses? If it is sub-judice for us let it be sub-judice for them, and if they cannot accept this Clause, let them give us an undertaking that the status quo, at any rate, will be preserved until the Income Tax Commission have had a chance of considering the very serious results to Imperial trade which will flow from the course of action which is now being taken by the assessors.
I venture to think that this matter is urgent, and that the House of Commons, 544 as well as the Income Tax Commission, has a right to be heard on it. We ought not to pass this Finance Bill into law tonight without some provision or undertaking which will secure that, at any rate, for the period of the next financial year, the trade of the Empire shall still flow in un choked and clear channels, and not be blocked, disturbed, and dissipated by a form of taxation which has nothing to commend it, and the proceeds of which can bear no relation whatever to the amount of damage which will be done to our Imperial trade, and I venture to add, also, to our own reputation for fair play.
§ Sir A. SHIRLEY BENNI rise to support, in a few words, the Clause moved by the hon. Member for Kilmarnock. I do not intend, at this late hour, to take up time by referring to inter-Imperial trade, and I only wish to draw attention to two points in connection with this. In the first place, unless we have this new Clause in a great deal of damage will be done to the agencies here in London, and I believe that a good many shipping firms abroad will either be unable or unwilling to send their goods here to our British market. The hon. Member who spoke last said that it was quite possible for a shipper abroad to send his goods through a broker, and that they could be sold and no Income Tax charged; but if he sent his goods to an agent, and the agent sold them, then about one-third of the profit was taken by the Government. Some people may say. "Why not send them to a broker," but the London agent and the British agent has done far more for our British trade than many people imagine. The shipper abroad wants an agent here in London, not only for the money that he frequently advances, and which he frequently gets from the bank for the shipper abroad, but also for the advice which that agent here in London gives to the shipper, and telling him where stuff is needed and when it should be shipped. I hope nothing will be done to injure the London agent in carrying on this business. If shippers have no London agent they frequently experience difficulty in financial and other directions. It is often the case that it is only because they can draw on their London agents that they are able to get their cargoes together If the Chancellor of the Exchequer is afraid that these agents may act as retainers and sell the goods in a way which will enable avoidance of the 545 payment of Income Tax, I say by all means charge the Income Tax on everything that is sold retail. This Clause says distinctly there is to be no Income Tax on the goods sold wholesale. I hope the right hon. Gentleman, who has a very keen interest in all that concerns Colonial trade, will see his way to accept this Amendment.
§ 12.0.p. m.
§ Sir A. WILLIAMSONI was one of those who took part in the Debate in 1915 when the Clause, which has been spoken of to-night, was introduced and brought in this new policy. It was, if I remember rightly, directed chiefly against meat companies, and as stated by the then Chancellor of the Exchequer that it was a tax on meat, who invoiced the meat at prices which left no profits to the shippers and thereby escaped any contribution. I pointed out at the time that the wording of the Clause was most unfortunate and would seriously affect the position of this country in its international trade—trade not only with our Colonies but with all countries, because such trade was largely done through the appointment of regular agents in this country. The value of these agencies here was not perhaps fully appreciated by those who took part in the Debate on that occasion. The value of a regularly established agent here greatly affects the insurance underwriting and banking aspects of the business, and secures preferential treatment for British buyers instead of allowing the business to go to foreigners. The value of the agencies is undoubted. But what will happen no doubt will be that our friends in the Colonies will not willingly pay Income Tax here on the profits of the produce they send over. They will take steps to avoid paying it, and it will not be very difficult to do so. In the first place they can sell through a broker. There is another way: they can sell the goods f.o.b. in foreign ports—German, Belgian and French, and then our market will lose its position and the trade will go to other countries. This is a very important matter indeed, but it becomes almost ludicrous in the light of appeals that are constantly made to us business men to establish ourselves all over the world—to establish agencies here and there to promote British trade. While you are making these appeals to us you are penalising people who establish agencies here. You seem to forget altogether the possibility of the retaliation which is 546 sure to follow and which indeed has already come in the United States, as the Chancellor of the Exchequer is no doubt aware. It is a most dangerous policy for this country to pursue—to try and tax profits on goods—profits which though technically made here is really made in the country where the goods are produced. It is totally unreasonable to tax these profits thus in view of the fact that the agent already pays Income Tax on his commission. It is said that the amount of the tax is qualified by reasonable merchandising, and even though it may be it is difficult to convince people of the justice of this method of taxation. But the Commission agent pays this tax already upon his commission! I regard this matter as a very serious one. All that the revenue will get is a very small sum indeed, because there will be means of deduction and of evading payment, and the injury done to the establishment of regular agencies here, and thereby continuing our position as the market of the world, will be a very serious matter indeed. I have said so before in this House, and I am pleased therefore to support this proposed new Clause.
Mr. CHAMBERLAINI am astounded at the speech of my right hon. Friend who knows the working of these Clauses. I am surprised that he does not appreciate more clearly what is the effect of the proposal that he supports. It has been a principle of Income Tax ever since its establishment that the liability for it attaches to the profits or gains accruing to any person whether British subject or non-resident in the United Kingdom from any property whatever in the United Kingdom or from any trade, profession, employment or vocation exercised in the United Kingdom. As time went on people found they could so adjust their business that the profit was not made here, and that they could evade the basic principle of the Act. It was for that reason that the charge to which my right hon. Friend has alluded to was made. He asks us to reverse it as a matter of consequence to the entrepot trade and particular sections of merchants. If there is any change required it is not to relieve the merchants, but to adjust the tax. Then as to the foreign company trade in this country in an article that is also manufactured here that—
§ Mr. SHAWIn connection with limited and foreign companies may I call the attention of the right hon. Gentleman to the fact that this proposal is confined for the time being to the Dominion and Colonial Governments?
Mr. CHAMBERLAINI am obliged to my hon. Friend; he is more of an Imperial preferential list than I am—a very sad position ! His Clause is confined to the Dominions; the result will be to place the company established in the Dominions and producing or manufacturing an article which is also produced or manufactured here at home in a position of preference as compared with the home manufacturer— a preference that cannot be given either to the home manufacturer or producer. Those of us who are oldest in the cause of Imperial Preference never suggested that the Dominions producer should be put in a better position than the home producer. That would be the effect of the Clause. I have no doubt the Amendment made by Mr. McKenna was necessary to prevent the evasion of the tax by the non-resident companies.
§ Sir A. WILLIAMSONThe British merchant is not interested. If the right hon. Gentleman refers to those in Canada, I agree.
Mr. CHAMBERLAINI understood my hon. Friend to Bay that it was the merchants here who were interested.
§ Mr. SHAWThis is something entirely new. The regular agent is hit, because it puts a premium on taking business from him and diverts it to irregular channels.
Mr. CHAMBERLAINI may be mistaken about that point. My hon. Friend says that the tendency of the change is to divert business from the regular agent to a broker. I think there is something in that, but that is because transactions passing through a broker escape taxation, while transactions in the same article produced at home do not escape. If a Royal Commission or anybody else could find a remedy, I should welcome it, but this Clause would give a preference to the Dominion producer over the home producer. There are three possible profits—the producers', the wholesalers', and the retailers' 548 profit. In all these cases arising in this country they are taxed, but arising out of this country they are not taxed.
§ Mr. MACQUISTENIn regard to that the right hon. Gentleman has said about the home producer, I would point out that, if this proposal were carried out, you are overlooking the fact that the Colonial producer has his own Income Tax to pay, and any profits made by the sale of his produce here will go into the profits of his own Colony and he will have to pay Income Tax there. Consequently, if he is charged here and in the Colony as well, he is paying a double Income Tax.
Mr. CHAMBERLAINThis is not a question of raising the double Income Tax. That point has been submitted to the Royal Commission.
§ Mr. MACQUISTENThe Colonial producer pays Income Tax in the Colony no matter where his produce goes to, and if he sends it here he is also taxed on it here. This is a hindrance in the way of Colonial trade. When the Chancellor of the Exchequer was introducing his proposals for Colonial Preference he spoke almost as if tears were pouring down his face; this policy, however, seems to suggest that he was talking with his tongue in his cheek. The Clause which my hon. Friend has proposed would do away with a great injustice; and, unless it is adopted, the trade in Colonial produce will all be done through the penny post. The Colonial producer will do anything to escape Income Tax; this country will lose the trade, and the bonds of Imperial Preference will to a great, extent be severed. I cannot understand why the right hon. Gentleman should persist in opposing this Clause. It is the stiffness and stubbornness of the permanent official, I should say, that is behind the opposition, but I know my right hon. Friend has nothing but good feeling for Colonial producers. T hope, therefore, he will seize this great chance.
§ Mr. STEWARTI hope the right hon. Gentleman will reconsider his decision. It came to my knowledge, in a certain inquiry in which I took part recently, that the Germans particularly are evading this tax—
Mr. CHAMBERLAINMy right hon. Friend will forgive me. It was because of the evasion of thi3 tax that Mr.McKenna made this change, but it can hardly be said the Germans are evading it, because we have been at war with them ever since.
§ Mr. STEWARTThey sold at an apparent loss in order to evade it. I ask the right hon. Gentleman to consider how this affects our Colonial and Indian friends. Is it not calculated to introduce elements of dishonesty in trade? It might even be possible to deduct the British Income Tax on the other side in the invoices, and thus get out of paying it.
§ Mr. NEALIs the question of Colonial Preference involved in this at all? is not that, in fact, an evasion of the issue? There can only be a question of preference, if at all, to the extent to which the English taxation differs from the Colonial taxation. If the producer in the Colony pays a tax equivalent to 6s. in the £, and is called upon again here to pay a like amount, you have at once double taxation; if you avoid it here you have equal taxation—that is to say, the goods are taxed 6s. in the Colonies, and home producers' goods are taxed 6s. here. I should have thought there was no question of Colonial Preference at all. As I conceive it, this duty is open to attack on a much more serious ground than that—namely, that it is liable to deprive the British market of goods from the British Colonies and drive them into other markets. Surely we cannot afford to have that! We had better lose a little in taxation than cease to have the chief market in the world.
§ Mr. INSKIPI should have thought this was exactly one of the appeals to which the Chancellor of the Exchequer might have listened, because it would not tend to decrease the yield from the tax, as so many of the requests which have been made would do. The tendency of the tax will be to diminish itself in course of time here. It will drive trade elsewhere, or else induce Colonial firms to sell outright instead of selling through their regular agents. My hon. Friend appealed to the Chancellor to instruct the Treasury not to press the matter pending the decision of the Income Tax Commission. If it has been submitted to them for consideration and report, it is only reasonable at this time that it should not be pressed, and the tax should not be collected until it has been reported on, and the House possibly may have a further opportunity of considering it.
§ Mr. PENNEFATHERI think my hon. Friend (Mr. Stewart) hit the right nail on the head when he suggested that the imposition of the tax would be to de- 550 prive us of necessary materials. The goods that are sent to us from the Colonies are not, as the right hon. Gentleman seems to suggest, as a rule, manufactured goods competing with home manufacturers. They are raw materials out of which our manufacturers make the incomes which pay taxes to the Exchequer. But apart from that, surely at this time we are not really engaged in local reconstruction. We are endeavouring to reconstruct and strengthen the Empire, and can we do it better than by removing obstacles to the consignment of Empire products to this country? There are being set up in all parts of the Empire concerns owned and managed by non-residents in this country, and they are not only willing, but anxious, to send their materials—mainly raw materials—to this country, and we distribute them, and in many cases re-export them. We do what is called this entrepot trade, and surely we ought to put no obstacle in the way of these goods coming to this country; and as this tax is an obstacle, I should very much like to support the Clause. This does not apply to retail, but to wholesale trades—wholesale consignments coming to this country for next year, employing our shipping and our labour. It would be a very great mistake to insist upon this tax, because apart from the revenue you aid, you would lose much more.
§ Sir F. YOUNGI was surprised to hear the Chancellor of the Exchequer say that this had no relation to double Income Tax. I think it has a very close relation, because if the statements made to-night are correct—I do not think they have been challenged from the Treasury Bench—that this produce, and it is mainly produce, is taxed in that part of the Empire in which it is produced and also taxed here, it is subject to that evil which is commonly called double Income Tax, and that is a very serious evil. If we take Australia as an instance, we know that this produce can be taxed to the extent of 10s. in the £including Federal and State taxes, to say nothing of the special taxes on the land out there, and having come here and been sold through an agent it is taxed 6s. in the That is, obviously, a case of double Income Tax, and must prejudice this country as the grand marketing centre of the Empire. The question is whether we are to encourage the merchants throughout the Empire to sell through well-established agents here is one which can be looked at from the point 551 of view of the Empire merchant in the Colonies, who is much better served by having an agent who acts upon a continuous policy, and is able to maintain a continuous supply of advice to the merchant or producer abroad. You come to the point where that agent becomes of great use to this country by reason of his trade knowledge, by means of which knowledge he is able to act as a medium for distributing the manufactured goods of this country. The trade of the Colonies is maintained to a very large extent owing to the merchants or agents in this country who have a knowledge of the Dominions, and have trade connections with the Dominions. It is a notorious fact that owing to the War a great deal of trade which this country had with the Dominions has for the time being lapsed, and we have to gain that trade back again. We are in very severe competition with America in particular as regards some of our Dominion trade. We are glad to know that there is a general disposition for people in the Colonies to revert to trade with the Mother Country, but it is idle to shut our eyes to the fact that the competition from abroad is very severe. Among the best factors we have for regaining that trade and maintaining it are the merchants of this country, who have an intimate knowledge of the Dominions, and have well-established trade connections. To destroy those connections by taxation which cannot produce a very great amount of revenue is bad policy. If we cannot get a satisfactory reply now from the Chancellor of the Exchequer it is a matter worthy of the closest and most sympathetic attention of the Government in the interests of Imperial trade connections.
Major LOWTHERThe hon. Member for Kilmarnock appears to me to make out a very strong case in favour of this Clause. When listening to the right hon. Gentleman I thought that he would resist it from two points of view. One was that this Clause would effect a serious reduction in revenue, and the other was that exemption from Income Tax in this particular respect would be an injustice to the resident. I may have misunderstood the right hon. Gentleman, but I did not gather that he put forward either of these reasons for resisting this Clause.
Mr. CHAMBERLAINI advanced the argument that the resident would be taxed more than the non-resident.
Major LOWTHERIt appeared to me-that his argument in that respect was fully countered by the hon. Gentleman who-responded to him afterwards. We do not want in any way to embarrass the right hon. Gentleman in the collection of the revenue, but I would appeal to him to consider between now and the Report stage whether he cannot meet the wise, legitimate, and reasonable request of those hon. Members who support the Clause.
§ Mr. SHAWPersonally, I am delighted that while it will go out to all the wide-flung. Dominions of the Crown to-morrow morning that the Chancellor of the Exchequer would not give way on a point which will not cost the revenue a penny, and refuses-to stay the hand of those who are trying to assassinate the carrying on of regular Imperial trade, yet every Member of the British House of Commons who has spoken on the subject has spoken against the Chancellor and has condemned his proposal. I am sorry if I have said anything that is un parliamentary. The right hon. Gentleman will, I am sure, pardon me if in the heat of the moment I have indulged in anything of the kind. Nothing was further from my mind. He is the last man in the House of whom I desire to say anything discourteous. But if a Colonial firm sells its produce direct (here to a wholesaler it escapes, while, on the other hand, if it employs a regular agent here, and we make a bit more from the produce in this country, it is hit. The Chancellor of the Exchequer twitted me with being a better preferential list than he is. I am not sure of that. He regards it as unfair to-Great Britain that Imperial produce should be sold here under the conditions which have been in force up to this moment as regards the wheat of Canada or the tea of India, because of some mysterious method of competition with those who are in. trade in this country who have to pay the higher rate of interest. I think that it would be for the benefit of this country that the produce of this country and the produce of the Dominions should flow in here untrammelled, but the right hon. Gentleman favours this new tax upon Canadian wheat because it may come into competition with British wheat. There is no British tea with which Indian tea can compete, and we want both British wheat and Canadian wheat, and I am very much sur- 553 prised that the Government while taking down duties as against the Colonies and the Dominions yet insists on redressing the balance by putting up barriers of a far more insurmountable description against the very people whom it is proposed to benefit. I feel so strongly on this matter that I intend to go to a Division, and I hope the Members of the Committee who feel that we have not been so fairly treated as is the wont of the Chancellor, that we have not had our arguments answered, and that, without sacrificing our revenue, we ought to prevent this new and serious