HC Deb 07 July 1920 vol 131 cc1562-71

(1) If any person who has paid, by deduction or otherwise, or is liable to pay, United, Kingdom Income Tax for any year of assessment on any part of his income proves to the satisfaction of the Special Commissioners that he has paid Dominion income Tax for that year in respect of the same part of his income, he shall be entitled to relief from United Kingdom Income Tax paid or payable by him on that part of his income at a rate thereon to be determined as follows:—

  1. (a) If the Dominion rate of tax does not exceed one-half of the appropriate rate of United Kingdom tax, the rate at which relief is to be given shall be the Dominion rate of tax:
  2. (b) in any other case the rate at which relief is to be given shall be one-half of the appropriate rate of United Kingdom tax.
For the purpose of this Section the expression "the appropriate rate of United. Kingdom tax" means the rate at which the claimant for the year to which the claim relates has borne or is liable to bear United Kingdom Income Tax, and where the claimant is liable to United Kingdom Super-tax the expression "the appropriate rate of United Kingdom tax" means a rate equal to the sum of the rates at which he has borne or is liable to bear United, Kingdom Income Tax and Super-tax. respectively for that year.

(2) Where a person has not established his claim to relief under this Section for any year of assessment before the first day of January in that year, the relief shall be granted by way of repayment of tax.

(3) Where by reason of the allowance of relief under this Section the rate of United Kingdom Income Tax deducted from or paid in respect of any part of the income of any individual is less than the standard rate, and the rate of the relief so allowed is greater than the rate appropriate to the case of that individual, such an adjustment shall be made in allowing to that individual any relief to which he may be entitled under the provisions of this Part of this Act relating to the rate of tax on the first two hundred' and twenty-five pounds of taxable income as may be necessary to secure that the amount of United Kingdom Income Tax finally paid' or borne by him shall be equal to the amount which would have been paid or borne if the relief under this Section had in the first instance been given at the rate appropriate to his case.

(4) Notwithstanding anything in the Rules applicable to Case IV. or Case V. of Schedule D or in any other provision of the Income Tax Acts no deduction shall be made on account of the payment of Dominion Income Tax in estimating income for the purposes of United Kingdom Income Tax, and where Income Tax has been paid or is payable in any Dominion either on the income out of which income subject to United Kingdom Income Tax arises or is received, or as a direct charge in respect of that income, the income so subject to United Kingdom Income Tax shall be deemed to be income arising or received after deduction of Dominion Income Tax and an addition shall in estimating income for the purposes of the United Kingdom Income Tax be made to that income of the proportionate part of the Income Tax paid or payable in the Dominion in respect of the income out of which that income arises or is received together with the full amount of any Dominion Income Tax directly charged or chargeable in the Dominion in respect of that income.

Provided that—

  1. (a) where any income arising or received as aforesaid consists of dividends which are entrusted to any person in the United Kingdom for payment and the Special Commissioners are satisfied that the person so entrusted is not in a position to ascertain the amount of the addition to be made under this Sub-section, the assessment and charge may be made on the amount of the dividends as received by the person so entrusted, but in any such case the amount of the addition shall be chargeable on the recipient of the dividends under the Case VI. of Schedule D; and
  2. (b) where under the laws in force in any Dominion no provision is made for the allowance of relief from Dominion Income Tax in respect of the payment of United Kingdom Income Tax, then in assessing or charging Income Tax in the United Kingdom in respect of income assessed or charged to Income Tax in that Dominion a deduction shall be allowed in estimating income for the purpose of United Kingdom Income Tax of an amount equal to the difference between the amount of the Dominion Income Tax paid or payable in respect of the income and the total amount of the relief granted from the United Kingdom Income Tax in respect of the Dominion Income Tax for the period on the income of which the assessment or charge to United Kingdom Income Tax is computed.
In this Sub-section the expression "dividends" includes any interest, annuities, dividends, shares of annuities, pensions, or other annual payments or sums in respect of which tax is charged under the Rules applicable to Schedule C or under Rule VII. of the Miscellaneous Rules applicable to Schedule D.

(5) Where under Rule 20 of the General Rules applicable to Schedules A, B, C, D and E, a body of persons is entitled to deduct Income Tax from any dividends, tax shall not in any case be deducted at a rate exceeding the rate of the United Kingdom Income Tax as reduced by any relief from that tax given under this section in respect of any payment of Dominion Income Tax.

(6) Where under the law in force in any Dominion provision is made for the allowance of relief from Dominion Income Tax in respect of the payment of United Kingdom Income Tax, the obligation as to secrecy imposed by the Income Tax Acts upon persons employed in relation to Inland Revenue shall not prevent the disclosure to the authorised officer of the Government of the Dominion of such facts as may be necessary to enable the proper relief to be given in cases where relief is claimed both from United Kingdom Income Tax and from Dominion Income Tax.

(7) The Commissioners of Inland Revenue may from time to time make regulations generally for carrying out the provisions of this Section, and may, in particular, by those regulations provide:—

  1. (a) For making such arrangements with the Government of any Dominion to which the last preceding Sub-section applies as may be necessary to enable the appropriate relief to be granted:
  2. (b) For prescribing the year which in relation to any Dominion Income Tax is, for the purposes of relief under this Section, to be taken as corresponding to the year of assessment for the purposes of United Kingdom Income Tax.

(8) In this Section:—

  1. (a) The expression "Dominion" means any British possession, or any territory which is under His Majesty's protection or in respect of which a mandate is being exercised by the Government of any part of His Majesty's Dominions:
  2. (b) The expressions "United Kingdom Income Tax" and "United Kingdom Super-tax" mean respectively Income Tax and Super-tax chargeable in accordance with the provisions of the Income Tax Acts:
  3. (c) The expression "Dominion Income Tax" means any Income Tax or Super-tax charged under any law in force in any Dominion, if that tax appears to the Special Commissioners to correspond with United Kingdom Income Tax or Super-tax:
  4. (d) The expression "Dominion rate of tax" means the rate determined by dividing the amount of the Dominion Income Tax paid for the year by the amount of the income in respect of which the Dominion Income Tax is charged for that year, except that where the Dominion Income Tax is charged on an amount other than the ascertained amount of the actual profits the Dominion rate of tax for the purposes of this Section shall be determined by the Special Commissioners.

For the purposes of this Section the rate of United Kingdom Income Tax shall be ascertained by dividing by the amount of the taxable income of the person concerned the amount of tax payable by that person on that income before deduction of any relief granted in respect of life assurance premiums or any relief granted under the provisions of this Section, and the rate of United Kingdom Super-tax shall be ascertained by dividing the amount of the Super-tax payable by any person by the amount of that person's total income from all sources as estimated for Super-tax purposes.

Amendment made: In Sub-section (4, a), leave out the word "the" ["the Case VI."].—[Mr. Baldwin.]

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

Sir F. YOUNG

I happen to be Chairman of an Association which has carefully watched this question for some two or three years, and contributed to some extent to the provisions of this Bill, and we feel grateful to the Government for having accepted so readily the recommendations of the Royal Commission. While the proposals do not go the full length of our desire, we feel that the Government has not been ungenerous in its treatment of what is a very difficult matter. As regards private individuals, we feel the great force of the point that there should be more or less equality of taxation of individuals living in this country. On that ground there is a great deal to be said for the provisions of this Clause which aim, at any rate, at putting individuals on an equal footing of taxation, whether their investments are within the United Kingdom or partly or wholly in other parts of the Empire. The idea, I believe, will be accomplished if the Dominions Governments pass reciprocal legislation, as is suggested by the Royal Commission. I would like to draw attention to the fact that whilst the provisions of this Clause improve the position of most of those who are affected by this double taxation within the Empire, as a matter of fact, the operation of the Clause makes the position of trading companies somewhat worse. I do not know whether the authorities are really aware of that fact. I am taking the case of those trading companies most affected by the double taxation, those which were operating chiefly in Australia, where taxation was perhaps higher than in any other part of the Dominion. The taxation in Australia on companies was somewhat favourable from the point of view of double taxation, and when the relief was fixed, as under the last Financial Statute, at 2s. 6d. in the pound, it afforded almost entire relief to the companies, inasmuch as they were able in the first place to deduct the tax they had already paid in Australia. Under this Clause they are not allowed to deduct the tax which they pay out there, and that is quite right. I am not quarreling with the general proposition, but the effect of it is that under the provisions of this Clause, inasmuch as they are not able to deduct that tax and their relief is only approximately what it was under the Financial Act of last year, they are in a worse position than they were then. I think it is a point which the Chancellor of the Exchequer might take into consideration, not respecting this particular Bill, but for the future, because companies are in a very different position from private individuals in relation to this country.

It is of supreme importance that many of these Anglo-Dominion companies should have their headquarters in the United Kingdom. It is, of course, of some benefit to them or they would not be here, but it is an immense benefit to this country that they should be here, and we should not, for what is a small matter, do anything to drive them out. I speak more particularly of those companies which are constantly sending out goods to the Colonies and the Dominions. The fact that they are resident here is a considerable guarantee that the goods sent out will come from this country, whereas if they are driven to establish their head offices in the Dominions, they will be much more amenable to the foreign traveller, and there will be considerably less inducement to do trade in this country. That is something which no party in this House would wish to see. There is another matter, in connection with companies, to which I invite the attention of the Chancellor of the Exchequer. It is the fact that Anglo-Dominion companies frequently consist of shareholders, some of whom are resident in this country and some resident in the Dominions. As regards those resident in the Dominions, you have neither of the two factors which constitute the basis of income taxation in this country. You have not the residence of the shareholder, who is the ultimate taxpayer, and you have not this country as the country of origin as regards the income, or, at any rate, as regards a portion or the bulk of the company. I think that in proportion to the capital which is represented by shareholders living in the Dominions, in proportion to the income actually earned in the Dominions, there should not be taxation levied in this country. That would be a very considerable relief, and would secure to the Government what they might legitimately claim—that such taxation should be paid by individuals living in this country, wherever the income may be earned. If some such provision could be grafted into the scheme of settlement for alleviating the double Income Tax trouble, I believe it would go a long way to prevent companies removing their head offices from this country and establishing themselves in the Dominions.

Sir D. MACLEAN

I should be glad if the right hon. Gentleman would tell us what arrangements, if any, at all corresponding to this proposal in this Clause, have been made or are in process of being made in the Dominions. Is the only quid pro quo which we can get here contained in proviso (b) of Sub-section (4)? What negotiations, if any, are going on between the Government and the Dominions beyond the seas relative to the proposals contained in this Clause?

Lieut.-Commander KENWORTHY

I should like to refer to the concession which is being extended to the mandated territories. It is impossible to do so at any length, because we have not had the terms of a single mandate before the House, with the exception of Nauru Island, which is a very small territory. I think it is rather a bold step to include in this Budget the mandatory territories on the same terms as regards this question of double Income Tax with the Dominions and Protectorates. I suggest it would have been far better if this matter had been left over until next year, when we could have the terms of the mandates before us. Article 23 of the Covenant of the League of Nations lays it down that there shall be complete equality of trade for all nations in the mandated territories, and that the mandate does not give us the right to in any way favour the trade of our own nationals by any abatements of export duties or preference or anything else.

Major-General Sir N. MOORE

This is the removal of an anomaly.

Lieut.-Commander KENWORTHY

if you remove an anomaly you make a concession.

Sir N. MOORE

It is removing an injustice.

Lieut. - Commander KENWORTHY

You are giving what seems to be a trading advantage to companies registered here and which carry on their trade in the mandated territories. It may not be a matter of very great substance, but I raise it because it may become one of tremendous importance. This question of mandates is going to assume enormous dimensions in the very near future. Has this matter been fully considered from all angles, or is it another instance, as in the Colonial Ministry, of being taken completely by surprise by the terms of Article 23?

Colonel WEDGWOOD

What is sauce for the goose ought to be sauce for the gander. You include within the ambit of the British Empire not only mandated territories but also protectorates, but in Clause 24, dealing with rebates, you exclude all those parts of the British Empire which are not genuine. In Clause 23 Egypt is accepted and the mandated territories are excepted, because you are dealing with unfortunate people who live in those countries and who claim, together with the rest of the community, to get rebates on Income Tax. When it comes to the question of companies domiciled in those countries with their headquarters here, the mandated territories, Egypt and the other protectorates, are put within the Empire. If you are going to regard Egypt or East Africa as part of the British Empire, that ought to be done throughout, and not only when it suits your Exchequer. The want of coordination in this Finance Bill is perhaps natural. It has been got up in a hurry, and it is being rushed through with inordinate speed. There is no reason why next year we should not have this mistake put right and treat every part of the Empire alike. When you give concessions to shareholders in these companies, you should also give concessions to the citizens resident in those territories.

9.0 P.M.

Mr. BALDWIN

I was very glad of the speech of the hon. Member (Sir F. Young) who introduced this subject, because he has taken a part in this matter and is thoroughly familiar with what is, after all, one of the most abstruse and difficult problems that has recently been faced. I agree with him that the British Government in this matter has been generous, but it was necessary for someone to make a start to deal with an anomaly that had become almost insupportable. Had it not been for the War, this is a matter which must have come up for consideration and decision some years ago. After great labours on the part of the Special Committee, chosen for that purpose by the Royal Commission on Income Tax, this question has been investigated, certain conclusions have been arrived at, and the result has been embodied in this extraordinarily technical and apparently complicated Clause. I gather that my hon. Friend is content now to watch the working of this Clause, fully confident that, as time goes on, and any practical difficulties, anomalies—what you like—may be revealed, they may be attended to as and when the occasion arises. Of course we hope that reciprocal action may be taken in the Dominions, but, so far, I may tell my right hon. Friend who put the question to me we have not yet had time to enter into any negotiations with regard to this matter. The duties of our Revenue Department have been so heavy recently in the preparation of this Bill that there has not yet been time to discuss these matters with the Dominions, but they on their part have now had time to study the report of the Royal Commission themselves. They have back with them now their representatives who dealt with these matters in London, and I have no doubt, when the time comes for us to come to close quarters on this question, we shall find that they will be no less ready to meet us than we have been to meet them. I am quite sure that in practice this Clause is a very fair and an honest attempt to meet what is a new problem or rather a problem new in comparativly recent years, and which affects no other countries in the world in the same way that it does our country, because there are no others that have the great volume of trading between the Mother Country and the Dominions and the territories overseas.

Sir D. MACLEAN

I asked the right hon. Gentleman about proviso (b).

Mr. BALDWIN

If the right hon. Gentleman will put down a question I will answer it.

Lieut. - Commander KENWORTHY

May I ask one word about the mandatory territories? The Treasury seems to have been as much taken by surprise by the provisions of Article 23 of the Covenant of the League as the Colonial Office admittedly were.

Mr. BALDWIN

My hon. and gallant Friend never takes me by surprise.

Lieut. - Commander KENWORTHY

Not you.

Mr. BALDWIN

The matters which the hon. and gallant Gentleman raises do not take me at all by surprise, but this Clause, deliberately, only applies to the countries which are specified in it.

Sir N. MOORE

Is it not a fact that the representatives in the various Dominions undertook to make favourable representations to their Governments on their return, recommending them to adopt the reciprocal procedure that is outlined in this Bill?

Lieut.-Commander KENWORTHY

I would like to know the meaning of these words in Sub-section (8)— The expression 'Dominion' means any British possession, or any territory which is under His Majesty's protection or in respect of which a mandate is being exercised by the Government of any part of His Majesty's dominions:

Colonel WEDGWOOD

What parts of the British Empire are there where there is no Income Tax at the present time?

Mr. BALDWIN

I cannot answer off-hand.

Colonel WEDGWOOD

Are not British East Africa and certain other Crown Colonies without Income Tax at the present time, and is it not possible for the right hon. Gentleman to bring some pressure to bear on the Colonial Office to insist on there being not only Income Tax in those Colonies somewhat similar to the burdens imposed on this country, but also, when they do introduce their Income Tax, they shall have Clauses similar to this introduced, so that in the case of Crown Colonies we shall avoid this scandal.