HC Deb 13 July 1920 vol 131 cc2311-34

For the purpose of this Part of this Act profits shall be taken to be the actual profits arising in the accounting period, and shall not be computed by reference to the income tax year or on the average of any years.

(2)Subject to the provisions of this Act profits shall be the profits and gains determined on the same principles as those on which the profits and gains of a trade would be determined for the purposes of Schedule D. set out in the First Schedule to the Income Tax Act, 1918, as amended by any subsequent enactment, whether the profits are assessable to income tax under that Schedule or not:

Provided that for the purpose of this Part of this Act—

Sir A. FELL

I beg to move, in Subsection (1), to leave out the words "taken to be the actual profits arising in the accounting period, and shall not be."

This is a small point, but its adoption would facilitate the working of the tax. A company's year ends on 31st December, or at some other period, whereas the Government year ends for the purpose of Income Tax on 31st March. It is proposed that there should be two periods in future, one for this 5 per cent. tax and the other for Income Tax. Surely the whole thing could be done at one and the same time. Income Tax is assessed up to the end of March, and the auditor and the company's officials render their accounts up to that time, and the Surveyor of Income Tax assesses them for Income Tax accordingly. You propose that the thing should be done twice under this Bill, involving extra cost and trouble. The calculations are made on identically the same system; my Amendment would secure that the assessment is done at one time.

Mr. CHAMBERLAIN

The Amendment taken by itself would not be workable, and I do not think it would be acceptable to the persons concerned. The Bill makes the period in respect of which they are charged the period in respect of which the concern makes up its own accounts. That would be more convenient than the hon. Member's proposal. Instead of involving the business concerns in more expense our proposal will involve them in less expense.

Mr. HOLMES

The hon. Member is under a complete misapprehension. He seems to be of the opinion that a Company's accounts for the purpose of making their Income Tax assessments are made up to the end of March. That is not so, at whatever date the Company ends its accounts, whether it is the 31st December or any other date, the average of three preceding years ending on that date is taken as the period, although the national financial year ends on 5th April. The hon. Member's Amendment would not make less but more work.

Sir A. FELL

I do not agree with what has been said, but I do not press the Amendment.

Amendment, by leave, withdrawn.

Mr. HOLMES

I beg to move in Subsection (2, a), after the word "investments" ["arising from investments"], to insert the words "other than investments in securities issued by the British Government since the fourth day of August, nineteen hundred and fourteen."

I do not move this Amendment on sentimental grounds. I am not going to put forward the suggestion that anyone who has invested in War loan during the War should necessarily be exempted from Corporation Tax; but so far as Excess Profits Duty is concerned, the Inland Revenue have refused to allow any man who invests his surplus capital out of his business in War loan to count that as capital in his business for the purpose of increased capital. A certain percentage has been allowed for increased capital in business, but if a man put £50,000 into War loan he is calculated to have withdrawn that out of his business and to have decreased his capital by £50,000. He is not allowed the increased capital on that for the purpose of the Excess Profits Duty. I do not think the Inland Revenue can now come forward and say that the interest on that War loan, if it is credited to profit and loss account, shall be subject to Corporation Profits Tax. They should be consistent. If they like to say, "We will admit that War loan is capital employed in the business and we will not regard such investment as a withdrawal of capital," well and good: then by all means charge Corporation Profits Tax. Have it one way, with both taxes, and not let the advantage be with the Inland Revenue for Excess Profits Duty and also for Corporation Profits Tax.

Mr. CHAMBERLAIN

I hope the hon. Member will not press this Amendment. My objection is directed not so much against his arguments as against the proposition itself. If the hon. Member looks a little further down the Paper he will see the explanation. There is a similar Amendment in the name of the hon. Member for Altrincham (Major Hamilton) to exempt "a security issued by the British Government or the Government of any British Dominion or Colony, or by a municipal authority in the United Kingdom." In normal times I should have liked to accept the Amendment which the hon. Member has moved, but once you begin there is no stopping. I think that my hon. Friend will see I have good reason for objecting to make a concession which may land me in difficulties.

Amendment negatived.

Sir IVOR PHILIPPS

I beg to move in Sub-section (2, a), after the word "received", to insert the words "directly or indirectly."

It is not quite clear from the words in this paragraph whether the same profits would in every case not be liable to pay Corporation Profits Tax a second time. There is evidently some difficulty about the matter, because though I put the question to the Chancellor of the Exchequer seven or eight weeks ago I have not yet been able to ascertain whether I am right or the Bill is right. The words I suggest may not be suitable, but I hope that the right hon. Gentleman will consider the matter before report, and if he comes to the conclusion that the same profits may pay a second time, that he will adopt the necessary Amendment.

Mr. CHAMBERLAIN

The hon. and gallant Gentleman is at one with us. I will accept his words subject to reconsideration as to whether they are apt words for the purpose, and if not they can be amended on report.

Amendment agreed to.

Mr. HOLMES

I beg to move, in Subsection (2, b), after the word "royalties" ["for rent or royalties"], to insert the words "or share of profits distributed as bonus under a profit-sharing scheme or otherwise."

It is not necessary to explain the wisdom of allowing such a reduction, because profit-sharing among employés is a method by which industrial unrest may be averted.

Mr. CHAMBERLAIN

All of us have a great deal of sympathy with the object of the hon. Member. We are all glad to see profit-sharing extended as far as we can. Where profiit-sharing is, as it were, a bonus on wages, and not remuneration on shares, I think that the Bill as it stands would be sufficient to exempt it. Where profit-sharing is by allotment of shares it would not, but on the other hand, the employé who is an ordinary investor in shares ought not to have any exemption in respect of relief, and that company ought not to have exemption in respect of the dividend paid on any share merely because it happens to be the share of an employé of the company. I think the hon. Gentleman's words are too wide, but if he will be content to move his Amendment without the words "or otherwise," or allow me to amend the Amendment by leaving out those words, I will accept that Amendment. I would like, however, to reserve liberty between now and the Report stage to see whether the Amendment goes further than either the hon. Member or I wish.

Amendment, by leave, withdrawn.

Further Amendment made: In Subsection (2, b), after the word "royalties" ["for rent or royalties"], to insert the words "or share of profits distributed to employés under a profit-sharing scheme."— [Mr. Holmes. ]

Sir J. D. REES

I beg to move, in Subsection (2, b), after the word "interest" ["paid to or interest"], to insert the words "above the rate of 5 per cent. or the Bank of England rate if higher than 5 per cent."

We have seen the Bank of England rate low, and we wish to see it low again, but the object of Sub-section (2, b) is, I understand, to prevent a director who may have control of a limited company from reducing the amount of Corporation Tax by having the capital in the form of loans instead of shares. This would work very hardly in the case of businesses in which capital is provided by a firm having an interest in the company. Take the very common case where the capital of a company is only sufficient to purchase the property or the factory, and subsequently the company carries on by money lent by such a firm. Why, in such a case, should the loans of money be prejudiced in this respect? Why should they be liable to this surcharge of interest on current account when they lend money bonâ fide, and they lend it for years for the purpose of carrying on the company? Could not the revenue be safeguarded by providing that the rate of interest shall not exceed a certain rate, or shall be subject to the rate charged by the Bank of England? I have endeavoured to provide for both these things in my Amendment. I hope the Chancellor will believe that I am not putting this forward with any desire to alter his Bill, but simply from a desire to do justice to a class of cases with which I am familiar and which is well-known to those in business to be a quite common occurrence, and a perfectly legitimate proceeding. If my right hon. Friend does not see his way to accept this Amendment now I shall be very grateful if he will undertake to consider it before the Report stage of the Bill.

Mr. CHAMBERLAIN

The case that the hon. Member has put is the case of a proprietor or of a man with a controlling interest who, instead of putting more capital into a business, makes a loan.

Sir J. D. REES

Not necessarily a proprietor.

Mr. CHAMBERLAIN

At any rate, a person having a controlling interest. If he put new capital in he would be subject to the tax under my hon. Friend's proposal, but if he lent the money he would not be subject. I do not think we ought to make that distinction, and although I am ready to consider the matter, I cannot hold out any expectations to my hon. Friend.

Sir J. D. REES

The person the right hon. Gentleman has described as having a controlling interest would have no obligation to put further capital into the company, nor does he get anything for his capital excepting the interest upon his capital, and I do not think my right hon. Friend has entirely grasped the intention of my Amendment; but if he will be so kind as to consider it, I shall be happy to supply him with any information which he may desire to have upon the point. In the circumstances, I will now ask leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

Major NALL

I beg to move, in Subsection (2),to leave out paragraph (c).

Under this paragraph as it stands the payment made to a director of a company who has a controlling interest in that company and who is liable to Super-tax will be twice taxed. I will take by way of example an extreme case, that of a managing director of a company with a controlling interest in it, and under his agreement with the company he has a fixed salary of £1,000 a year, with 20 per cent. on the profits. The commission amounts to £12,000 and the total income from all sources to £18,000, on which he would pay in Super-tax £3,450: of that, £2,925 would be in respect of disallowed remuneration. Under this Corporation Profits Tax, £12,000 of this remuneration would be disallowed, and the company would be called upon to pay £600 additional taxation in respect of it. That is purely a double tax. The company is going to pay Corporation Profits Tax on that amount, and the director himself is going to pay Super-tax by reason of his own big income.

Mr. CHAMBERLAIN

I think the Committee will appreciate the fact that we are here dealing only with the remuneration paid to a director who has a controlling interest in a business. Where he has not a controlling interest, either directly or indirectly, the remuneration paid to him is allowed as a deduction. The hon. and gallant Member gave us an illustration, and I do not know how it struck other people, but it seemed to me that a company which could afford to pay its director so large a sum as he specified could well afford to meet its liability under this tax, and it is obvious that there must be some provision to prevent people with a proprietary or a controlling interest in a company from paying away to themselves as remuneration what would otherwise be the profits of the company, and subject to the Corporation Profits Tax. I think that must be common ground to us all, and that the hon. and gallant Member would not himself, on consideration, think it possible altogether to omit this paragraph. The limit of £1,000 which is fixed is an arbitrary limit, and any such limit must be fixed, I think, fairly generously.

Major NALL

Is it not exceeding the intention of the right hon. Gentleman that this man whom I have given as an illustration is going to pay Super-tax? If that money is not escaping Super-tax, why does he want the company also to pay this Corporation Profits Tax?

Mr. CHAMBERLAIN

The hon. and gallant Member cites one of the arguments which I used in support of this tax which is not applicable to the case he has in mind, but the wider basis of the tax is as applicable to this case as to any other.

Mr. G. BALFOUR

It seems to me that in a very small business £1,000 may be rather too large an amount. Take a small limited company with a total capital of £2,000: the ordinary salary of a manager may not be more than £500 or £600. Is he to be entitled to put himself at once up to the £1,000? Then take the case of a much larger company, where, as is quite common, instead of £1,000 the amount may be £10,000 or £20,000. Is he only to be allowed £1,000? I could cite scores of cases where men could hire themselves out at very large salaries, and, if they left the business, would have to pay £10,000 or £15,000, and we are told that the sum to be allowed is only £1,000. I would like to ask a question in order to clear up a doubt in my mind on this point. Does the Clause mean one individual, even if the holdings of that individual may be put down in the names of other people, or does it refer perhaps to four, five, or six people who actually own, in their own right, the whole of their share capital between them, with no one director having control of the share holdings? In order to save time I will say what I have to say on an Amendment put down later on the Paper dealing with substitution. I propose, in the next paragraph of this Clause, to leave out a few words and to insert other words which would give to the Exchequer full protection—I think in many respects fuller protection than is provided in paragraph (c). I commend these words to the attention of the Chancellor of the Exchequer, and if, on consideration, he can see his way between now and the Report stage to do something in the direction of accepting these words I should be only too delighted to withdraw this Amendment, when the Chancellor might have an opportunity of considering an Amendment I propose later which I think will give effect to all he has in mind, and to even more ample protection than he suggests.

Mr. HOLMES

There are very many private companies in this country which consist of one or two or three shareholders. They are really private firms. If the Amendment to leave out this Subsection were accepted by the Chancellor of the Exchequer, it would enable the whole of these companies to get out of Corporation Tax altogether, but it is intended—although the right hon. Baronet the Member for the City of London (Sir F. Banbury) tried to persuade us this Corporation Tax was only intended to be a measure to obtain Super-tax from people who were now escaping payment—it is intended to be a new Profits Tax, which will ultimately take the place of the Excess Profits Duty. It is essential that this paragraph should be carried in order to prevent private companies from avoiding altogether the Corporation Tax. I hope the Chancellor of the Exchequer will not accept the Amendment.

Colonel GRETTON

Before we pass from this Clause I am inclined to think that the Chancellor of the Exchequer is right in requiring this Sub-section. At any rate, he wants some protection, even though the particular form is not en- tirely favourable. I want to ask what the following words mean: a manager or other person concerned in the management of a company who has a controlling interest in the company, whether directly or indirectly, and whether solely or jointly with any other persons. Obviously they are, because there may be cases where there is a group of directors, one of whom is actually the managing director, holding only a small number of shares in respect of salary. He may be in association with other directors who are not in receipt of salary, but hold a number of shares. In such a case as this is it intended that the amount paid the managing director should not be allowed to be in excess of £1,000, or, if he should receive a salary of £2,000 or £3,000 because he is on the Board with other directors who take part in the management of the firm, is his salary not be allowed in excess of £1,000? It is clear that it is the intention of the Chancellor of the Exchequer that proprietors of companies should not, by agreement among themselves, pay to their managing directors excessive salaries in order to escape this tax. We all agree that the Chancellor is perfectly right in safeguarding himself from such a proceeding. On the other hand, there are very many cases to which some consideration should be given.

Amendment negatived.

Sir J. D. REES

I beg to move, in Subsection (2 c), to leave out the word one ["one thousand pounds"] and to insert instead thereof the word "three."

I thought that I should save time by supporting the last Amendment instead of moving this one, but I realise that there must be some limitation as to the amount, and therefore I move to leave out "one" thousand and insert "three" thousand. The reason why I do so is that no large business can be run on a remuneration to the manager or managing director of only £1,000. Under this Clause, if the directors who control the business have associated with them other directors who do not control the business, they would be surcharged on all the remuneration in excess of £1,000, which it had been necessary to pay to the directors who did not control the business in order to retain their services. That seems to me to be a distinct flaw in the Bill. Suppose that a company has a capital of £1,000,000—that is not a very tremendous company—£1,000 is a mere trifle to consider in respect of remuneration for the manager or the managing director. It is true that there could be an appeal to the Special Commissioners as to the reasonableness of the remuneration which may be in excess of £1,000, but the taxpayer might hesitate before placing himself in the hands of Somerset House in this question. I submit to the Chancellor of the Exchequer that the figure of £1,000 is an altogether impossible one to allow to those dealing with the business of a company in respect of remuneration of the manager or managing director. To a business or company of any importance the figure is a mere bagatelle. These managing directors are not like officials who clear their desks every day, leave their work and go off home, and have no more to say on the matter. These managers have to put in every ounce of their ability to make the particular business concern a success—and they do make it a success, which no official could. If the Chancellor of the Exchequer thinks £3,000 too large a figure, let us split the difference and make the figure £2,000, although I consider that that figure is an inconvenient one.

Mr. CHAMBERLAIN

I confess I was rather surprised to hear my hon. Friend suggest that officials lead an indolent life.

Sir J. D. REES

No, I did not say that.

Mr. CHAMBERLAIN

My hon. Friend used words to that effect.

Sir J. D. REES

I am sorry, but I really cannot let that pass. I was an official myself for a great part of my life. I meant to point out the difference between an official and a managing director or a manager of a large business concern. I meant no disrespect to the official, for whom I have the profoundest regard.

Mr. CHAMBERLAIN

I am very relieved to hear my hon. Friend's explanation, because, from what I understood him to say, I despaired, under those circumstances, of carrying conviction to his mind. But if my hon. Friend bears in mind the discussion on the last Amendment where objection was taken to the fact that £1,000 would be in many cases too large a sum, he will see the difficulty, and, indeed, the impossibility, of forthwith multiplying that sum by three. It is, I think, better to have a fixed arbitrary sum—it would be more satisfactory to the people concerned and to the Committee—than if I were to propose that it should be left in the discretion of the Inland Revenue authorities to allow such a sum as might be thought proper in any individual case. Had I done so I feel sure I should have been met with the criticism that I had been making them an arbitrary authority, and making them, and not the House of Commons, the really definite taxing authority, and I hope under the circumstances that my hon. Friends will not press this.

Amendment negatived.

Colonel GRETTON

I beg to move at the end of Sub-section (2, c), to add the words: Provided that a deduction shall be allowed in respect of the full amount of such remuneration where it is payable to a particular person by virtue of a specific provision relating to such person contained in the articles of association of the company, or by the terms of an agreement entered into between the company and such person before the passing of this Act. This Amendment attempts to meet the objection which has been raised with regard to the Amendment of the hon. Member for North East Derbyshire (Mr. Holmes), and the objection which has been raised by the hon. Member for East Nottingham (Sir J. D. Rees). It deals with the actual remuneration. I am not altogether satisfied that the Bill limits the remuneration to an agreement made before the passing of this Bill, and I do not see why there should not be some provision for agreements made after the passing of the Bill. The Clause as it stands is vague and difficult of interpretation. I do not think the right hon. Gentleman can interpret it himself, and I ask for some explanation. Salaries and remuneration have been increased owing to War conditions, and they are a heavy charge; they are a fair working expense, part of the machinery for carrying on the business of the company; and I ask that this Clause may be. accepted subject to any Amendment found to be necessary on the Report stage.

Mr. CHAMBERLAIN

I understand that what my hon. Friend wants to provide for is the case, not of the proprietor-director, but of the employé-director who happens to be a shareholder who has a few shares. If that is the case he wants to cover, that is covered already by the Bill, and his Amendment is not required. We cannot allow the real proprietor to vote to himself remuneration what under any other circumstances would clearly be dividend, but the case which my hon. Friend put to me a moment ago, and to which he is now addressing himself, is the case of the employé-director. His case will not be eliminated from consideration by reason of the fact that he holds a few qualifying shares in order to enable him to hold the post of director.

Colonel GRETTON

My difficulty is with the wording of the previous Subsection. That refers to a proprietor who is interested "whether directly or indirectly and whether solely or jointly with any other persons." Those words are very wide and sweeping, because the manager who is an employé is associated with and holds shares jointly with the persons who control. That is the case we want to provide for, and I am quite certain the right hon. Gentleman means the same thing, but the words of his previous Sub-section sweep in, on any ordinary interpretation, the managing director who is an employé of the company, because he is jointly with other persons associated with the controlling interest.

Mr. CHAMBERLAIN

I think we are at one. I have had the words looked at again, and I am advised that they would not have the effect my hon. Friend fears. What I want to guard against is the case of three or four proprietors of a business. Under the Clause an allowance may be made in respect of each of them of £1,000. But because there are three or four of them they must not be allowed to divide up all the profits and so to take away all the profits in the shape of remuneration. My hon. Friend does not want them to do that. He and I want the same cases to have exemption and the same cases to be included within the scope of the Subsection, and I believe my words are effective for our common purpose, but I will have them looked into again to make sure.

Mr. HOLMES

I assume the Chancellor will carry out the same procedure with regard to the Corporation Profits Tax as his officials have carried out in regard to the Excess Profits Duty. That is, where there are several proprietors, one of them is the working proprietor, his remuneration will be allowed in full as a deduction, and the deduction will not be allowed in the case of the others. Take, the case of four men who put up £1,000 each for a business, making a capital of £4,000, and where one of them runs the business, the others being sleeping partners. His remuneration will be allowed as a deduction, but no deduction will be allowed in the case of the others. This has been done for Excess Profits Duty and I presume a similar practice will be carried out in the case of the Corporation Profits Tax.

Mr. TERRELL

I hope the Chancellor of the Exchequer will see his way to meet this case, because there is a good deal of dissatisfaction at the way the question of the managing director's remuneration has been handled in the case of the Excess Profits Duty. We think that where there is an existing agreement fixing the rate of the remuneration, or where it is settled by the articles of association of a company formed before the passing of this Bill, that the Treasury should honour such arrangement which has been entered into, because obviously there could be no collusion in such a case to defeat the Revenue. The £1,000 which it is sought to fix as the limit may be far too much in some cases, and in the case of big companies may be far too small. I would impress upop my right hon. Friend that it is no good saying "a director with a controlling interest," because he can always divest himself of his share interest. He can always defeat the Revenue by getting rid of the shares. You do not grant a loophole of escape. I would suggest that it is a much fairer way to accept the arrangement outlined in the Amendment now before the Committee.

Mr. G. BALFOUR

Take the case of four or five directors in a company all owning substantial blocks of shares, perhaps in the aggregate a majority, but that the whole of the directors are drawing salaries no higher than would have been paid to replace men in a similar service. Would the Chancellor see that protection is given in a case like that. Speaking earlier in the evening, I mentioned the case of a man drawing £10,000 or £15,000. If he dropped out you would have to pay that remuneration to replace his services. Can the Chancellor of the Exchequer see his way to meet such a contingency?

Mr. REMER

I think the Chancellor has overlooked the important words in this Amendment, "before the passing of this Act." I fail to see how there can be any collusion or any evadement of the tax through the operation of anyone who has even a controlling interest in a company with these words in. The effect of these words seems to me to be that anyone who has a controlling interest in a concern would have to have an agreement which was in existence before the passing of this Act stamped before that date, which would have the effect that no increase after the passing of the Act would be valid. Therefore, I think that with these important words in the Chancellor could have no fear that anyone can avoid this tax or get out of the liability placed upon and, therefore, that he can easily accept the words in the Amendment, which is framed solely to assist the Chancellor of the Exchequer and to avoid any evadement.

Mr. CHAMBERLAIN

I recall a discussion we had not many hours ago, in which vehement objection was taken to a provision dealing with the distinction between Corporations formed before the passing of the Bill and those formed after, and Corporations which might have taken certain action before the passing of the Bill and those which might take the same action hereafter. There was very strong objection on both sides, and I agreed to reconsider it. In the absence of those-who vehemently objected before, hon. Gentlemen are asking me to introduce a fresh condition. If I do so, I would only jump from the frying pan into the fire.

Mr. TERRELL

What we ask is. that agreements come to before the passing of the Bill should be honoured. After the passing of the Bill you have the knowledge of the Bill, and you can make your arrangements accordingly, but agreements arrived at before the passing of the Bill should be honoured. Agreements of that sort cannot be agreements, which are intended to defeat the revenue.

Amendment negatived.

Mr. G. BALFOUR

I beg to move at the end of Sub-section (2, e), to add the-words "or Excess Profits Duty, whichever be the greater." The object of this Amendment is to allow a deduction for depreciation to be made under the most appropriate account. Obsolescence of Income Tax is provided for under the Income Tax Clauses, and there is provision for obsolescence under the Excess Profits provisions of the Finance Act, 1915. It seems to me incontestable that whichever is the most appropriate allowance should be made. I do not think there can be any injustice to anybody in giving right and proper provision for obsolescence and depreciation, and I think it should be provided for in the new duties.

Mr. CHAMBERLAIN

I think I am able to meet the suggestion of my hon. Friend, and I will accept the Amendment.

Amendment agreed to.

Mr. HOLMES

I beg to move, at the end of Sub-section (2, f), to insert the words, "except that interest, dividends, and other income arising from investments, received after deduction of Income Tax, shall be included in the profits at the net amount."

A company that has investments receives its dividends after deduction of tax. If it is entitled to a dividend of £100, it actually receives £70, the tax of 6s. in the £ having been deducted, and it credits its profit and loss account with £70. Does the Chancellor of the Exchequer intend by this paragraph, in which he says that no deduction shall be allowed because of the liability to pay Income Tax, that when the company is assessed for Corporation Tax the £70 received has to be written up to £100? My Amendment is that, if only £70 is received, Corporation Tax is only to be charged on that amount.

Mr. CHAMBERLAIN

My view is that the Corporation Tax is a deduction when you are assessing for Income Tax, but I cannot make both taxes a deduction when you are assessing for either. The hon. Member proposes to make it work both ways to the disadvantage of the Exchequer. The result would be that a block of investments would be subject neither to the full Corporation Tax nor to the full Income Tax. My view is that the company should pay on the interest received, without deduction for Income Tax.

1.0 A.M.

Mr. HOLMES

This will mean a tremendous amount of adjustment in the accounts of companies. The Chancellor of the Exchequer says they would not be liable for full Income Tax or Corporation Tax. They would be liable under my Amendment, because they have paid Income Tax before they receive the money. This will mean that all income from investments will have to be written up. That will make it very complicated for the authorities and for accountants and firms if the Chancellor refuses my Amendment. I think it will be much simpler and make very little difference to the Exchequer if he agrees that the Corporation Profits Tax should only be charged on the net dividends received from investments.

Mr. CHAMBERLAIN

I will look further into it. My mind is not working as it should be at this time of night. I could not accept it at this moment without looking further into it.

Mr. G. BALFOUR

The Chancellor is thinking of the companies which have to pay Corporation Tax, while my hon. Friend is referring to investments held by a company from which Income Tax is already deducted. Surely it is not fair for the Chancellor of the Exchequer to charge Corporation Tax on the net income of the investments on which Income Tax has been paid. I am sure that it is not the intention of the Chancellor to charge Corporation Tax on an income on which Income Tax has already been paid by a third party. It is necessary to put something in to protect these people. I hope the Chancellor will be able to meet this on Report stage, or else it should be pressed now. It certainly seems an extraordinary proposal to charge Corporation Tax on an Income Tax already paid by a third party.

Mr. CHAMBERLAIN

I will look into it if the hon. Gentleman will give me time.

Amendment, by leave, withdrawn.

Major WHELER

I beg to move, in Sub-section (2, g), after the word "duty" ["duty payable"], to insert the words "any mineral rights duty and excess mineral rights duty."

The Clause as it stands allows the deduction of Excess Profits Duty, but it does not allow the deduction of Mineral Rights Duty and Excess Mineral Rights Duty.

Mr. CHAMBERLAIN

I agree to the Amendment.

Amendment agreed to.

Mr. HOLMES

I beg to move, in Subsection (2, g), after the word "Kingdom" ["United Kingdom"], to insert the words "and for any sum payable or paid on account of Excess Profits Duty or similar duty imposed in any country outside the United Kingdom."

This has been allowed for Excess Profits Duty, and I suggest it should be allowed for Corporation Tax.

Mr. CHAMBERLAIN

Yes; I accept that, if the hon. Member will allow me to consider the exact wording.

Amendment agreed to.

Mr. G. BALFOUR

I wish to move, at the end of Sub-section (2, g), to insert the words in the case of a company either in its own name or that of a nominee owning the whole of the ordinary capital of any other company, or so much of that capital as under the general law a single shareholder can legally own, the two companies shall not be separately assessed, but the assessment shall be made on the first named company in respect of the profits of both companies as if that other company were a branch of the first named company; Provided that for the purpose of the limitation of the amount of tax payable under Sub-section (1), paragraph (b), of the Section of this Act the marginal note to which is 'Charge of corporation tax' deductions shall be made in respect of the matters referred to in that Sub-section in relation to the profits of both companies except as regards payments by that other company to the first named company.

Mr. CHAMBERLAIN

I think my hon. Friend's object is the same as that of the Amendment standing in the name of the hon. Member for North-East Derbyshire (Mr. Holmes), and I am ready to accept the Amendment in the name of the hon. Member for Derbyshire. I think it is the same thing. It is as broad as it is long as to the Exchequer and the taxpayer in general. I should only accept it on condition that I should have liberty, as in other cases, to consider the exact wording.

Mr. BALFOUR

I agree with the suggestion of the Chancellor of the Exchequer, but I suggest that the wording in my case has been more carefully studied to protect the Exchequer than that of the Member for North-East Derbyshire. I am prepared to withdraw my Amendment.

The CHAIRMAN

I have not put it before the Committee. I will put the other before the Committee later on.

Captain WEDGWOOD BENN

On a point of Order, The Amendments down in the name of my hon. Friends and myself deal with the matter disposed of in the present Clause. Will you indicate whether you will take any Amendments dealing with the modification of paragraph (h)? I mention particularly the Amendment of the hon. Member for North-East Derbyshire on Clause 45, Sub-section (2, h), to leave out from "1893" to the end of the paragraph, and insert the words "only profits-arising from transactions with nonmembers."

The CHAIRMAN

No. In view of the decision earlier in the evening, I do not propose to call those Amendments, the Committee having decided the question. I conferred with some hon. Members and they thought it would be as well to leave any decision on that question to the Report stage.

Mr. BARRAND

I beg to move, in Subsection (2, i), to leave out the words "or reserved for," and to insert instead thereof the words "reserved for or expended on behalf of."

The object of the Amendment is to make quite clear what I believe is the intention of the Chancellor of the Exchequer, that that portion of the surplus of an insurance fund which belongs to the policy-holders shall be freed from the Corporation Tax.

Mr. CHAMBERLAIN

I accept that Amendment.

Amendment agreed to.

Mr. HOLMES

I beg to move, at the end of Sub-section (2, i), to add a new paragraph: (j) any sum received by way of repayment of Excess Profits Duty in respect of a previous accounting period under Subsection (3) of Section thirty-eight of the Finance (No. 2) Act, 1915, and subsequent Amendments thereof shall be excluded from the profits taxable. The Committee will know that where the company has already paid Excess Profits, Duty and its profits fall in a subsequent accounting period below its pre-War profits or percentage standard it can obtain repayment. It seems obvious to me that if money is received during the current year in repayment of Excess Profits Duty of last year it should not be considered a profit of the current year on which this tax is assessed. Therefore, this Amendment is intended to exclude from the proviso any repayment of Excess Profits Duty in respect of previous years.

Amendment agreed to.

Mr. H0LMES

I beg to move, in Sub-section (2), after the words last inserted, to add the following new paragraph: (k) where any company, either in its own name or that of a nominee, owns the whole of the ordinary capital of any other company or so much of that capital as under the general law a single shareholder can legally hold, the provisions of this Part of this Act shall apply as if that other company were a branch of the first-named company and the profits of the two companies shall not be separately assessed.

Mr. G. BALFOUR

I should like to call the attention of the Chancellor of the Exchequer formally to the words in the Amendment which I proposed which provides that, where you have fixed charges in the underlying company quite apart from fixed charges paid out by the holding company, that they are not duplicated.

The CHAIRMAN

I understood that the hon. Member for North-East Derbyshire (Mr. Holmes) was dealing with the middle one of the three paragraphs which stand in his name on the Order Paper—namely, paragraph (k).

Mr. BALFOUR

My Amendment was withdrawn on the understanding that the hon. Member for North-East Derbyshire was moving the insertion of paragraph (k)

Mr. CHAMBERLAIN

Would the two hon. Gentlemen be agreed to leave this over until the Report stage and allow me to bring up words on the Report stage. I would prefer to bring up my own words.

Mr. HOLMES

I want to ask the Chancellor of the Exchequer just one thing. He has been good enough to ask me, in four cases at any rate, to defer them until the Report stage. Does he ask me to put my Amendment down again on Report, or will he himself put down Amendments?

Mr. CHAMBERLAIN

Where it is a question of finding words, I will certainly put down an Amendment, but where I have undertaken to consider matters between now and Report, without distinctly undertaking to propose Amendments, if I am unable to meet the hon. Gentleman to whom I have been replying, I shall not have any Amendment to propose. In such a case as this, I shall put down words myself.

Amendment, by leave, withdrawn.

Mr. HOLMES

I beg to move, in Subsection (2), after the words last inserted, to add a new paragraph: (l) In the case of any contract extending beyond one accounting period from the date of its commencement to the completion thereof, and only partially performed in any accounting period, there shall (unless the Commissioners of Inland Revenue owing to any special circumstances otherwise direct) be attributed to each of the accounting periods in which such contract was partially performed such proportion of the entire profits or loss, or estimated profits or loss, in respect of the complete performance of the contract as shall be properly attributable to such accounting periods respectively, having regard to the extent to which the contract was performed in such periods. This Amendment is taken, word for word, from the Finance Act, 1915, with regard to excess profits.

Mr. CHAMBERLAIN

I am prepared to accept the Amendment.

Amendment agreed to.

Mr. BARRAND

I beg to move, in Subsection (2), after the words last inserted, to add the words Where a company carries on life assurance business in conjunction with assurance business of any other class, the life assurance business of the company shall, for the purposes of apportionment under this paragraph and for no other purpose, be treated as if it were a separate business carried on by a separate company.

Amendment agreed to.

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

Lieut.-Colonel Sir JOHN HOPE

I should like to ask the Chancellor of the Exchequer whether he would be prepared to give a chance to the co-operative societies to put forward some other means of tax other than the Corporation Tax? Would he favourably consider on Report the question of omitting them for the Corporation Tax?

Mr. N. MACLEAN

May I point out to the Chancellor of the Exchequer a diffi- culty with regard to some of the wholesale and retail co-operative societies. These societies are generally founded upon £1 shares paid by the members. These amounts are invested in the wholesale societies, and each society must take out a share for each member that it has in the retail society and the wholesale society. According to the wording of this Clause this will be looked upon as an investment, and under the Clause a retail co-operative society will be taxed upon the profits made, and then the wholesale societies will be taxed upon the profits they make, partly from the capital from the retail societies. This is purely a case of capital invested by a parent company in a subsidiary company, and if the Chancellor of the Exchequer is going to tax the wholesale societies and also the profits of the retail societies he will be taxing them twice over. Is that his intention?

Mr. CHAMBERLAIN

I am sorry that I cannot answer that question. I am grateful to the hon. Member for raising it. I will inquire into it, and communicate by letter with him, if he will allow me. With regard to the question of the hon. Member for Midlothian (Sir John Hope) he will readily see the difficulty of introducing a new tax on Report—a tax not covered by Resolutions already approved by the House. I am quite ready to consider proposals from co-operative societies for making a similar contribution in lieu of this particular tax, but I cannot pledge myself to be able to introduce it on Report, because that might mean going back to the elementary stages of the Budget, which I think he will agree is impossible.

Captain W. BENN

I would point out that we are rather at a disadvantage as to putting words down ourselves, and the words that may be put down by the right hon. Gentleman. If an Amendment is put down by the Government it is an Amendment which is sure to be selected. I would urge the Chancellor of the Exchequer to bear this in mind with reference to any concessions he may make on this important matter, because we may not be able to achieve what we mean owing to the procedure of this House.

Mr. N. MACLEAN

Why not consult the co-operative societies?

Mr. CHAMBERLAIN

Of course, I have seen them, as the hon. Gentleman no doubt knows, but they made no suggestion, but only gave their reasons for objecting to my proposal. I am quite ready to examine any proposal they may make, but as to the proposal of the hon. Member he will see the extreme difficulty of introducing a new tax at this time, because you have to go back to the Report of the Resolutions, which may involve two or three extra days' work upon the Finance Bill.

Sir J. HOPE

Will the right hon. Gentleman see the co-operative societies again?

Mr. CHAMBERLAIN

There again I shall be very hard pressed. I shall have a great deal of work on considering the points brought before me, and I cannot undertake to see deputations. If the societies have any proposals to make, I shall be glad to see those proposals.

Captain W. BENN

Would it be possible to mitigate the incidence of this tax on the co-operative societies? Would the right hon. Gentleman be willing to put down words on the Paper in order to ensure that on the Report stage?

Mr. CHAMBERLAIN

If I can find words to secure unity where there is now division, I will do so.