§ 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. SHAW
I beg to moveThat the Clause be read a second time.It is a Clause which involves no sacrifice of present revenue; but the point is an important one. It is aimed as a new attempt on the part of certain assessments in London and elsewhere to impose taxation upon the Colonies, and when the matter is explained I think the House will realise that it is an extremely grave departure in policy. All that those who favour this new Clause wish to do is to safeguard the position of our Imperial trade as it stands to-day. There are three ways in which a firm in the Dominions can dispose of its produce in this country. It may sell it direct to a wholesaler here; if it does that, it is not charged with Income Tax on the profit which it makes. It may sell it by doing a hand-to-mouth and irregular course of trade on our market through commission agents or brokers, and if it does that it is not charged with Income Tax on the profit which it makes. The 1434 third method, and the method which I venture to suggest is the best for this country, is that the firm in the Colonies should conduct a regular course of business with this market by employing one or other of those substantial and long-established agency houses in the City of London or elsewhere in the United Kingdom. Suppose it appoints one of these houses as its regular agent. From that moment it is penalised. Once it establishes a regular channel for its produce in this country, that channel is going to be blocked up. At present that is not the case, but since May of this year attempts are being made to block up these regular channels. There can be nothing more important, I venture to think, at the present time than to keep British trade flowing within its regularly established channels. Take the position of a Canadian company, for example, which. wishes to set up a regular course of business here. In all probability it appoints some great firm here to act as its agent. I know of cases where such firms have been appointed half a century ago to act on behalf of firms in India with native shareholders or of firms in Canada with purely Canadian shareholders, and that has been the normal course of business up to the present. But now, unfortunately, in this year, for the first time, there is being directed against purely Colonial businesses an entirely new form of attack, if they have been rash enough to set up a regular course of trade here through regularly appointed agents. I may say that I am not in any way interested personally in this matter, and I have not one single penny of interest one way or the other, but the matter was brought to my notice in the form of a letter received by a very eminent firm in the City of London on the 30th May, 1919. This was a letter from a surveyor of taxes to this eminent firm, who have acted, I believe, for a period of years for a certain company which is domiciled in India and which sends through this firm its Indian tea to be disposed of on the London market. This is the letter, dated 30th May, 1019:Gentlemen, it would appear that by virtue of the Articles of Association, you hold the position of London agents for this company, for the purpose of the sale of tea in London, etc. It would, therefore, appear that the profits derived in this country from such sales are assessable in your name. I shall be glad, therefore, if you will let me have particulars of the amounts of the sales effected 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, 1435 and also particulars as to the cost of production, etc., of this tea, in connection with which I shall be glad to have the accounts of the company.That is not an attempt to tax the agent, who is already taxed to the full on any profit which he makes, but it is an attempt for the first time in our history to get past the agent and to place a new form of double income Tax upon a Colonial and Imperial firm which conducts its business overseas. It is done, I understand, under cover of a piece of hasty war-time legislation, which I venture to suggest to the Chancellor of the Exchequer would never have been passed by him or if we had not been in a panic. Section 31, Sub-section (2), of the Finance (No. 2) Act, 1915, says:A non-resident person shall be chargeable in respect of any profits or gains arising, whether directly or indirectly, through or from any branch, factorship, 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.I know of several firms who for half a century have been sending their Indian tea through regularly appointed agents, and from now onward, if this is pressed by the minions of the Chancellor of the Exchequer, they will have, in addition to the taxation in India, an additional 6s. in the £for their native shareholders to pay because they send their produce here through a regular channel. The same Section, Section 31, Sub-section (6), states this, which I think will amaze the House of Commons:Nothing in Section 41 of the Income Tax Act, 1842 (as amended by any subsequent enactment or by this Section), shall render a non-resident person chargeable in the name of a broker or general commission agent, or in the name of an agent, not being an authorised person carrying on the non-resident's regular agency or a person chargeable as if he were an agent in pursuance of this Section, in respect of profits or gains arising from sales or transactions carried out through such a broker or agent.The position is therefore this. I am a Canadian firm, I send my produce, as I have done for many years past, through a regular agent, and I am penalised 6s. in the £. I am the same Colonial firm, I send my produce dissipated over the market through commission agents or brokers, and I get off scot-free. That is a position so absurd and anomalous that, although I have spoken to many hon. Members about it, they would hardly believe me until they had seen it in the Statute.
1436 This new attack on Colonial businesses creates a position or some gravity at the present time. It sets up two new and most undesirable tendencies. Let me briefly take the case of tea. The native tea companies and firms in India, rather than submit to this, will be tempted to send their tea to other markets, for instance, Amsterdam, which, as the House knows, is the great competitor with London for the leadership of this class of business in the world, and we are really-giving Amsterdam a great impetus by this, because these Indian firms will be able to send their produce to that market without the inconveniences which are so rapidly becoming associated with the regular course of business in this country. I would remind the Chancellor of the Exchequer that that applies not only to the produce which we keep in this country, but it is a distinct blow to that great entrepot trade in tea in which, as in many other Colonial articles, we at present hold the leadership of the world. If this market is put under penalties which apply to no other market in the world, we can hardly hope it will remain the great central entrepot of our Imperial trade. That is the first point, that it tends to force Colonial produce into other markets, and the second point is that if that produce continues to be sent here, it must be sent here through irregular channels. It is impossible to emphasise too much the importance at this time of making the channels of our inter-Imperial trade secure and clearly marked. We need this inter-Imperial trade now more than ever we have done before in the history of the British Empire, and I must confess that, although I know the sincerity of the. Chancellor of the Exchequer on matters of preference, preference is obliterated and far more than obliterated by the course of action which is being taken by the assessors with his apparent approval and consent. These are some of the arguments in favour of this Clause. I would remind the House that it does not involve the sacrifice of a penny of existing revenue, that it seeks merely to maintain the same position as is in force at this moment in regard to our imperial trade, and that it seeks to prevent the regular channels of that trade being blocked up by this entirely new and entirely gratuitous effort on the part of the assessors, who are naturally parochially minded.
The Chancellor of the. Exchequer's answer in Committee was, if I may say so with 1437 respect, profoundly disappointing to all concerned, and I propose briefly to run over the three arguments against this Clause which he then produced. The first of his arguments, and I am going to quote from the OFFICIAL REPORT, was:It has been a principle of Income Tax ever since its establishment that the liability for it attaches only 'to the profits or gains accruing to any person whether a 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' "—All these words are perfectly irrelevant, because there is no profession exercised in the United Kingdom by the firm in the Colonies which sends its produce here. The profession is exercised by the agent, who makes his profit and whose profit is taxed. The Chancellor of the Exchequer went on to say:As time went on people found they could so adjust their business that the profits was not made here, and that they could evade the basic principle of theAct."—[OFFICIAL REPORT, 16th July. 1919, col. 546.]I venture to say that the Chancellor of the Exchequer must admit that that dangerous introduction of the word "evasion" is singularly unjustified. In what way is a Colonial firm which sends its produce here guilty of evasion, when it sends it through open, regular channels, when it sends it here rather than across the border of the United States, and when it chooses to receive in return a cargo of British machinery instead of American machinery? In what way is it guilty of evasion'? I venture to tell the Chancellor of the Exchequer that I know that the effect of what is being done just now will be evasion on a colossal scale, and evasion dictated by the desire of Colonial firms to maintain their existence. Australia is faced with an Income Tax of something like 10s. in the £, and another 6s. on their produce here will make it 16s. in the £, and that will mean that the attractions of this market for our Dominions are going. Australia is only one instance and there are other places, and rather than submit to this entirely now form of double Income Tax which is being imposed within the Empire, even while the Commission is sitting, they will find methods, not of evasion perhaps, but of avoidance, one of the most apparent of which is the avoidance of this market altogether. We come to the second of ray right hon. Friend's arguments. Perhaps it was the late hour 1438 of the night, but I do think my right hon. Friend did not treat this matter with his usual fair and open mind. He said: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."—[OFFICIAL. REPORT, 16th July, 1919. col. 547.]That is an argument for Protection. and it is the worst argument for Protection I have ever heard.
§ Mr. SHAW
I will deal with it on that ground. It is a strange plea for equality which says to our Colonial kinsmen. We here will pay single Income Tax, but you henceforth will pay double Income Tax." That, surely, is not equality. I think it is rather a plea for Protection, and I am surprised to find a plea of that kind in the mouth of so eminent and so intellectual a Protectionist as my right hon. Friend. Is his argument that wheat from Canada must be kept out of this market unless the Canadian producer, in addition to the Canadian Income Tax, pays here an Income Tax of 6s. in the £ merely as a penalty for sending it through regular channels? I would remind my right hon. Friend of two things—first of all, that the profit on the sale which the Canadian farmer gets has been earned by his labour, by his skill and by the judicious employment of his capital in Canada, and it is the result of all the purely Canadian enterprise which he has devoted to his business, and, of course, his agents, the wholesalers and the retailers in this country all pay Income Tax up to the hilt on anything which they make by their efforts here. He pays in Canada on what he makes by his efforts in Canada, but to tax the Canadian farmer in this way is to put a premium on the sale of the produce of the farmer in other markets, and to prevent his having a return cargo of our finished manufactures, and encourage him to go to the United States or to some other of our manufacturing competitors. That is the first thing in regard to the god of Protection to whom the lesser god of Preference must on all occasions bow. I must remind my right hon. Friend of something else. The British manufacturer here is not in competition with overseas produce, 1439 which is the only thing with which this Amendment deals. I should be very much surprised to learn that there is any ground for my right hon. Friend's argument that one single British manufacturer has ever in the whole of the last century asked that Colonial producers should be subjected to a new form of double Income Tax, as an additional protection to himself, and I think it is most unfair to our great British manufacturers that such a suggestion should be made. The third argument of the Chancellor of the Exchequer was this. He said at the end of his speech,There are three possible profits—the producers', the wholesalers', and the retailers' profit. In all these cases arising in this country they are taxed, but arising out of this country they are not taxed."—[OFFICIAL REPORT, 16th July, 1919, cols. 547–548.]Perhaps my right hon. Friend was misreported.
I do not want to interrupt my hon. Friend's argument, if it is really an answer to the argument I used. My argument is that profits made in this country are subject to tax; profits made outside this country by a non-resident or non-resident company are not subject to tax in this country.
§ Mr. SHAW
I am much obliged to my right hon. Friend. The whole point is to secure that profits made by purely Dominion or Colonial firms, by their efforts there, shall remain free from Income Tax. I dare say the thing was decided without consultation, or I do not suppose it would have been started, but here the assessors are demanding taxes from Canadian producers, a thing which has never been known before, and which constitutes a grave danger to this country as a market, and so serious a menace to our Imperial relations, that the House of Commons, as the great deliberative assembly of the whole Empire, has a right to take something more than a parochial view of this matter. The supporters of this Amendment ask my right hon. Friend to "think Imperially," as my right hon. Friend's father of honoured memory said before him. I ask him to accept this 1440 Amendment for three reasons. In the first place, there is the reason dear to the heart of every Chancellor of the Exchequer, that it involves no sacrifice of any existing revenue; in the second place, this tax will produce a revenue comparatively trifling and temporary, because it cannot go on, as methods will betaken to avoid the tax; and, thirdly, because at so critical a time as this we cannot afford to take short views and to employ hasty and shallow expedients. I really think, if my right hon. Friend gives this his reconsideration, he will come to the conclusion that in the position in which the country stands at the present moment, with the somewhat dismal picture of the commercial future which lies before us, one of the greatest of our permanent interests is that we should place no fresh barriers in the way of Imperial trade which, if left untrammelled, is bound, in the lifetime of the present generation, to be extended to dimensions which never before entered into the minds of Members of this House.
§ Brigadier-General Croft
In view of the fact that the Chancellor of the Exchequer has decided that the whole question of double Income Tax should be left over to be discussed by the Committee which has been appointed, I want to express the hope—if I may add my words to those of my hon. Friend, whose lucid explanation of this new Clause must have impressed the House—that my right hon. Friend will accept the Clause anyhow, pending the decision of that Committee, in order that it may be considered. It seems to me that the real point is that the Chancellor of the Exchequer's minions, as they are called, are trying to get hold of the profits of merchandise. If the fact is, as my hon. Friend says, that produce from the Empire is to be taxed twice over—once in the Dominions and once again here—itis intolerable that that should continue. If it is true, it must be perfectly clear that an enormous amount of Canadian produce will come to this country from the United States, because the burden imposed will be well worth the while of these producers sending their products to that country. There is only one thing I want to add, and it is this: The Chancellor of the Exchequer, in answering my hon. Friend, stated that it was really a plea for equality. In the long run the result of this is going to be that either this tax will be avoided, as my hon. Friend explained, 1441 by making use of unrecognised agents, or else produce is going to foreign countries, and we are going to lose the direct trade. The burden of double Income Tax, as this House is well aware, has been one which people in the Dominions feel is a very great hardship. I believe that but for the War the people in the Dominions would not have tolerated it. As we know, individuals have been taxed up to 17s. in the £ owing to the fact that they have been taxed in this country and in Australia by the Commonwealth Government and by the States, and if we are to let it go forth that anything of the same kind is going to happen in connection with the products of the Empire, it will be a very bad day for the country and for the trade which it is so essential to build up between this country and the Empire. I do hope my right hon. Friend will accept this Clause pending the decision of the Committee. He can lose very little, and, if there is any doubt, I hope at any rate he will allow this Clause to be inserted.
§ Mr. HOHLER
I have listened with great interest to the speech of my hon. Friend, and I confess I do not quite follow his reasoning, and, unless I misunderstood him entirely, I disagree with him. The whole question, it seems to me, has been the difficulty of charging Income Tax in the case of a. man who is carrying on business in this country just as much as anyone domiciled here. There was no machinery by which, though he was carrying on business in this country through an agent, you could charge him Income Tax, and therefore, as I understand, the Amendment to the law was made, and you were enabled to charge him.
§ Mr. HOHLER
That is just the thing. If I employ a casual agent I am not carrying on business here, but. if I employ a regular agent he has to enter into a contract with me in this country; in other words, he is carrying on business for me. In this case it is a company in this country just as much as if it were domiciled here, and it would be an easy expedient to escape all taxation to constitute your company abroad, and then raise a cry of Dominion and double Income Tax, and you would get off scot-free of all Income Tax here. The real thing is how to tax a man trading here so that he shall pay the same Income Tax as 1442 a man or company domiciled in this country. It is said that it is an injustice to the Dominions. Where is the injustice? Take a corn merchant. He buys a freight of corn, say, in Canada. He buys at f.o.b., he pays his charges and gets his cargo here. He has to deal on this market and sell it as best he can and make a profit. On that profit he is taxed. Now it is said that the man who in the Dominions takes full benefit of our market, sends his goods here to an agent, the agent having almost certainly entered into a transaction to sell in the market here, and taken the benefit of our prices, is to pay no Income Tax at all!
§ SIR F. YOUNG
Will the hon. and learned Gentleman deal with the case of the corn merchant who gathers together produce in Canada, ships it to this country, and sells it to an agent: clearly that portion of the profit that he makes here should be taxed in this country, not the profit he makes in Canada, which is taxed there?
§ Mr. HOHLER
So far as I am concerned —of course this is only my judgment—it does not matter a bit whether or not the produce is f.o.b. I only gave it as an illustration—the merchant in this country carrying on business here who buys f.o.b. But the man abroad has to pay on. his goods here, and therefore it is quite immaterial, in fact, whether he gets the goods gathered or whether he was the grower. He has bought, say, corn in. Canada to send here. He charters his own ship, it may be, and delivers the produce here against bills or shipping documents to the order of his regular agents. It may be that the regular agent helped or arranged the sale before the cargo came from abroad. The Colonial or the company makes the whole of the profit. It has been made in our market. I can see no reason why the Dominion company, or the individual, who deals in that way, through a regular agent carrying on a regular distinctive business here in our market, who is in the law—this is my view—subject to the King's Writ, and can be served in this country, and is bound to appear in our Courts to answer that writ—why, because he is carrying on business here, should be exempted, as suggested. Before we depart from our present practice of taxing the man who is carrying on business in our markets, let us seriously consider the matter. I certainly hope the Chancellor will consider before doing anything of the kind in our present needs. It is 1443 not a question of double Income Tax at all, in my judgment. That arises in regard to investments in War Loan, Consols, and the like, and discourages the Colonial and the foreigner from investing in our securities if they want to do so. In my judgment, it would be wholly unfair to our merchant, who has to deal and buy in the same market as the Canadian, at the current cost, but sells in our market, pays full Income Tax, Excess Profits, and the like. The Canadian company is registered merely in the Dominions. It may be composed of all English shareholders registering their company in Canada—an excellent devise to escape the taxes. I am glad to see that my right hon. Friend the Member for the City of London, who understands these things much better than I do, agrees with my argument. I hope, indeed, that the Chancellor of the Exchequer will do nothing of the kind without full consideration.
The proposal spoken to by my right hon. and learned Friend deals with a subject than which none perhaps is more complicated. But it is not quite so easy to settle as my hon. Friend with his quality of persuasive speech would make us believe. I think in this case he rather confuses the matter by talking of a double Income Tax. We do not help to a clearer understanding of the position by that. The question of double Income Tax is the most formidable question, perhaps, among all the difficult problems for the consideration of the Royal Commission; if not the most difficult, certainly it is among the most difficult. It is of enormous constitutional importance. The aspect of the situation has altered owing to several things in part, and in part owing to the financial position of the United Kingdom in consequence of the enormous sacrifices we have been called upon to make during the War. I do not want anything I say to be held in any way to prejudge that very large question. What has been raised here this afternoon is important, but, in so far as it touches the question of double Income Tax, it is almost an insignificant one, if I may say so. It is an insignificant problem to the problem of the double Income Tax, which is really a much more complicated problem than my hon. Friend would have led us to suppose. He talks as if the basis of the law in regard to the assessment of Income 1444 Tax had been changed within the last few years, and that apparently on insufficient consideration, and in the midst of the War! My hon. and learned Friend probably knows Income Tax law as well as I do. The basis of Income Tax law from the beginning has been that the non-resident—and here we are dealing with the non-resident—is taxable here for profits made in this country. There is no change in the basis of the law. What was found was that there was a development in trade, and the machinery devised to secure the end failed to secure it. The machinery was changed, and the machinery only, by the Act of 1915. Nor was that done without discussion. My hon. and learned Friend spoke with amazement, real or affected—I do not know, and he will forgive me for suggesting the latter—but he suggested a dramatic surprise in respect to the matter! This very subject was a matter of acute debate and discussion at the time of the earlier Debate. Mr. McKenna, then Chancellor of the Exchequer, moved, I think, in the first instance to put in the Clause relating to brokerage in consequence of the strong representations made from many quarters of the House, whose representatives have not been heard in this Debate up to the present time.
The principle of Income Tax law from the beginning has been that the nonresident should pay Income Tax on profits made in this country. If he does not do that he is placed in a more favourable position than the resident. It is not the law that he should pay profits qua Income Tax on the profits he makes outside this country. But my hon. and learned Friend talks as if we were proposing to tax the Canadian farmer on his profits. That is not so. We are proposing to tax the man who sells corn here on the profit he himself makes. If you allow it to be done without taxation then the non-resident who sells to another man is in a better position, as my hon. Friend pointed out, than the resident competitor who buys f.o.b., delivers it, carries out exactly the same transaction, and makes exactly the same profit in this country. Take another case. My hon. Friend who moved the Amendment illustrated his case—specially by the tea companies of India. The tea companies of India are largely non-resident companies—not wholly so, but largely. The tea companies of Ceylon, 1445 are largely resident companies. They pay, do the resident companies, not only on the profits they make here, but on the profits they make anywhere else. They, therefore, pay on the actual profits of production in Ceylon. They have here to pay on the merchant's profit, and the wholesaler's profit, and if they are retailers they also pay on the retailer's profit. Are you to say if such a company is non-resident, or is an Indian company, they shall escape taxation on the profits made here? I do not think you can sustain that position. I do not think it is fair. Let me say that I" am very much puzzled in my own mind—if I may make that frank admission to the House—as to what exactly the law should be. My hon. Friend who moved the Amendment says the tendency of this application of the law is to drive the non-resident agent, who has been accustomed to work through a broker, to continue that, because sales by a broker escape, whilst profits made at the hands of the agent do not escape. I am not sure there is not much force in that. I do not think that there is hardship done to the non-resident, as my hon. Friend suggests; but I think there may be some hardship done to the resident agent, and there may be a tendency to drive non-resident firms into the hands of the brokers.
§ 6.0 p.m.
I do not think it clear as to what would be the right course to take. This very matter was under discussion, as I have said, when the change in the law was made in 1915 by Mr. McKenna. It was as a result of that discussion that he made the law what it now is. I do not think it would be right, in view of the arguments put before the House, without much more consideration for the House to reverse the decision deliberately come to only three years ago. My hon. and gallant Friend opposite asked me to accept a Clause in order that the matter might come up for consideration by the Royal Commission, but if I accepted this Clause I should take it out of the purview of that Commission, and prejudge the advice they might give by deciding the matter in anticipation of their consideration. By leaving the Act as it stands I do not prevent the matter being taken into consideration by the Commission, and I hope they will hear evidence from those for whom my hon. Friend spoke.
I am aware of that because my hon. and learned Friend told me that he had moved upon his own motion, and I do not mean in the least that he is the spokesman of an interest in any improper way. I hope those who in his opinion suffer hardship, the non-resident company or producer, and the resident agents in this country, will put their case before the Commission, and that they will hear the case of the resident companies in competition with non-resident companies, or the resident companies in competition with the non-residents selling through an agent; and I also trust they will hear evidence on the side of the broker and the commission agents. This is too difficult a question for me to decide dogmatically at the present time. I agree that it should be discussed and carefully considered, and I am not satisfied with the position of the law as it stands. I could not, however, act on the information of my hon. and learned Friend because that would prejudge the whole case, and might be a very grave injustice.
§ Mr. HOLMES
I think this Clause was originally inserted by Mr. McKenna for the purpose of preventing the evasion of the tax by certain Colonial importers of meat, who had opened retail shops in various parts of the United Kingdom, and were invoicing their meat at such a price that the retail shops got no profit at all. That, I think, was the main reason for Mr. McKenna introducing this Clause. It appears to me that the assessors of the Inland Revenue have not merely met that point, but they have gone much further. Their difficulty is to say how much of the profit made by a Colonial merchant should be allotted to the Colonies and how much should go to the profit made here. What they have done is, that they have said, "We will take the whole lot," and that seems a grave injustice.
May I put a specific case? A Canadian merchant buys a large quantity of corn in Canada, takes a ship, and pays the freight, and by the time the corn reaches here it has cost £50,000. If he sells it at £55,000 then that £5,000 was made in this country, but it is made by the Canadian as a Colonial merchant. Let me put a case the other way. Supposing a London merchant gets an order for machinery from Birmingham for Quebec. He ships it out to 1447 Quebec and makes £2,000 profit, but according to the right hon. Gentleman that is a Canadian profit which should be taxed with Canadian Income Tax.
In order to make his case clear, will the hon. Member tell us how he would treat the purchase of the £50,000 worth of corn? The purchase is not made by a Canadian in Canada, but by a merchant in this country, who imports £50,000 worth of corn and sells it at £55,000. Would the hon. Gentleman release the Englishman from taxation?
§ Mr. HOLMES
The man here is resident in the United Kingdom, getting the advantage of the United Kingdom so far as protection is concerned of the Army and Navy and other things, and consequently he should pay a tax on his profits here.
His profit would be made here. The point of where the profit on the transaction is made depends not upon the nature of the transaction, but on the place of residence of the person who draws it.
§ Mr. HOLMES
I do not know whether my right hon. Friend is trying to draw a red-herring across my argument, but surely the point is that if a man is carrying on business in a certain country he is liable to taxation on the profits he makes in that country, whether he sells his goods in that country or sends them to a foreign country. I think that is a general principle. If the Canadian merchant sends goods over here he would pay the Canadian Income Tax on his profits, and similarly he would pay in selling in this country and in Canada. English merchants would protest if on everything they sold in the Colonies or in foreign countries upon which they make a profit they were called upon to pay Income Tax in those particular countries. The right hon. Gentleman says that a Canadian merchant who sells corn or anything else to this country should pay Income Tax on the whole of his profit. In trying to secure justice to the revenue he is surely doing an injustice to the Colonial merchants, and he should alter the law or his administrative rules so that the assessment is not upon what are genuine Colonial profits, which should not be taxed in the United Kingdom.
§ Sir F. YOUNG
I agree with the Chancellor of the Exchequer that the question 1448 is one of very considerable difficulty, but I do not agree that it does not come within the sphere of the double Income Tax question. In many instances that question is not raised, but it is very apt to be raised under the operation of this Clause, and to that extent I think it does come under all the criticism which might be applied to double taxation generally. Whilst I supported the hon. Member who moved this Amendment in Committee, I did so because I think there was a wrong to be righted. At the same time, I think this is one of the questions which cannot be settled except on the consideration of the double Income Tax question generally, and as that is to be submitted to the Royal Commission, I am going to say now that I think the Chancellor of the Exchequer is right in saying that this ought to go to the Royal Commission as well. The Royal Commission are meeting the question in a very practical manner, inasmuch as they are inviting representatives from all the Dominions to come here and meet them in conference to discuss this question from a practical point of view. That conference is likely to meet some time in September, and I am hopeful that the outcome of it will be a practical and happy solution. That conference might very well deal with the question raised by this Amendment.
As to the problem itself, I think the Chancellor of the Exchequer put a proposition to the last hon. Member who spoke which exactly explains the whole case. Taking wheat as an example, the produce which is shipped to this country from the Dominions is usally shipped by companies or persons who buy in the Dominions in large quantities, and it is not sent by individual farmers to any extent whatever, but by large companies or merchants who buy very large quantities. They cannot buy without incurring a great deal of expense. They have elaborate machinery and agencies throughout the country by which they gather their bulk at different points, and then they send it here and eventually make a profit. The point is that some of that profit should be allocated to the very elaborate business which is carried out in the Dominions in question, and another part of the profit should be allocated to this country, and only that part should bear taxation in this country. I think that will be accepted as a sound way of dealing with the question.
1449 Let us look at the other side of the case. A merchant over here buys a cargo of wheat, but he buys on the f.o.b. basis, which has provided the profit to the merchant in the Dominions. That includes the profit made in the Dominions and it is taxed there. That merchant brings his cargo and sells it here at a profit to himself, and on that profit he rightly pays the tax in this country. The f.o.b. sale is a very happy instance of how the profits are really divided—that is, the profit allocated to the Dominioins and that which belongs to this country. What we want to do is by some machinery to bring about that same dividing line in the case of the non-resident company or merchant who collects his goods in the Dominions and sells them in this country. Obviously, it is not an easy question, and it has to be done on some principle to do justice. It is in that case, where the seller here is a non-resident, where he does actually pay double Income Tax. When the merchant gathers together 1,000,000 or 5,000,000 bushels of wheat, which he sells over here, he has to return on his Income Tax papers to his own Dominion Government a statement showing how much it cost him to gather that wheat together and what he got for it in London, and he is taxed in the Dominion according to the rate of taxation there upon the whole of that profit. If that profit, made in London, is again taxed here, without any division, then, as regards that part of the profit which is properly allocated to the Dominion, it does pay double Income Tax, and to that extent it comes under the double Income Tax evil which has been so discussed in this House from time to time. Whilst I support the new Clause, inasmuch as I believe that there is a very solid injustice to be remedied in this question, which is incidental to double Income Tax, yet it seems to me that, as the Royal Commission are making a very fair effort to come to some practical solution, and are inviting representatives of the Dominions to help them, I suggest that the hon. Member who moved the Clause might, having ventilated the question, leave the matter, with a view to a solution of the problem coming from that quarter. I speak feelingly on the question because I happen to be chairman of the association which constantly makes protests on the subject of double Income Tax and, whilst we appreciate the delay which Royal Commissions involve, we have accepted, at any rate, the fact that there 1450 is a Royal Commission, and we are endeavouring by every means to bring the practical side of the question before that Commission, because we believe that an earnest attempt is being made to get rid of an admitted injustice.
§ Mr. SHAW
Will the Chancellor of the Exchequer leave the law as it is at present, seeing that the exact state of the law may very soon be a matter of discussion in the Courts? Will he let the whole question remain sub judice until the Income Tax Commission has reported? Let him give a general instruction to the assessors that until the Income Tax Commission have reported on this question they shall not proceed any further in the new direction. That is not an unfair thing to ask. The Chancellor of the Exchequer will remember that this is an entirely new and hitherto untried experiment which is being engaged in by the assessors. If he would leave the matter sub judice I should be satisfied.
The hon. Member asks me to do what I have no right to do. It is a very dangerous thing to invite a Minister to exercise discretionary power of that kind. It might lead to a Minister meeting with the tragic fate which overcame some of our predecessors. The hon. Member opposite stated what ought to be the law in respect to dividing profits with regard to business done in Canada and business done here. That is a division that is now made. Of course, the division in any particular case may seem to the individual affected to be unfair. That is what the taxing authority endeavours to arrive at.
§ Motion and Clause, by leave, withdrawn