CORPORATION PROFITS TAX. (Hansard, 24 June 1921)

Sir J. D. REES

As I believe I am in order I merely wish to ask if the Financial Secretary to the Treasury will look into a matter under paragraphs (B) and (C), Sub-section (2), of Section 53 of the Finance Act, 1920, under which directors who have a controlling interest in a company are not allowed any remuneration in excess of £1,000 per annum, and the deduction is disallowed in the case of directors having a controlling interest or any interest on money paid to such directors. I gave my reasons for this at the time and they are on record in the Debate. I understood the then Chancellor of the Exchequer to say that there was at any rate some prima facie ground for considering a change necessary in respect of this matter. Nevertheless, as nothing was done, I would ask my hon. Friend if he, would take note of my point, and see what tan be done in the Budget of the present year on this account.

Upon the Corporation Profits Tax I want to ask him also to look up this point. Under Sub-section (4) of Section 28 of the Finance Act, 1920, it is provided that, in estimating income for the purpose of United Kingdom Income Tax, no deduction shall be made on account of the payment of Dominion Income Tax. Sub-section (2) of Section 53 of that Act provides that profits for the purpose of the Corporation Profits Tax are to be determined upon 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. From this I gather—my hon. Friend will tell me if I am wrong—that a company is not entitled to deduct Dominion Income Tax before its profits are assessed for Corporation Profits Tax, but if the Dominion Income Tax paid be added back, then the ultimate result to the shareholders in a company carrying on business abroad and having to pay Dominion Income Tax, as compared with a company carrying on business in the United Kingdom, will be worse to the extent of the Corporation Profits Tax on the amount of the Dominion Income Tax. That does not appear to be equitable, and I doubt very much whether such is the intention of the Act. I have put this point in a concentrated form, be- 1770 cause I do not wish to have any discussion on the subject. I do not expect my hon. Friend to do more than to say that he will be good enough to look into it. I will hand the notes to him. In certain quarters of the House it will be known that for a great number of years I have been in the habit of dealing with the question of the double Income Tax, and that is my excuse for troubling the House at this time.

§ The FINANCIAL SECRETARY to the TREASURY (Mr. Hilton Young)

I am the very last to complain of the hon. Member raising on this occasion subjects of this nature, which are always so attractive and full of interest. As he has justly said, it would not be well, in matters which involve certain intricate considerations, to hasten to a rash pronouncement. As to the first matter which he raised, I do not think that even on the spur of the moment if would be right that I should hold out to him any hope that there is any likelihood to be a reconsideration. The allowance for directors in assessing profits for Excess Profits Duty was, as he will no doubt remember, a matter which was thrashed out with a great deal of consideration and with a certain amount of what it would not be unfair to call give and take in the course of the discussions on previous Finance Bills. That was an appropriate matter considered during the progress of the duty, but it would not be an appropriate matter to consider by way of additional relief, altering to some extent the basis of the duty, now at a time when the duty is actually being repealed. The matter, however, will be taken into account, and I will bear in mind what he has said.

The second point which he raised will need a little further consideration. I should imagine that the reference would not be to Section 28, but to Section 27, Sub-section (4), of the Finance Act, 1920. I do not recognise how Section 28 can have any reference to the matter, but Section 27, which deals with double Income Tax, will come into account. My first impression, subject to what may subsequently be revealed by further consideration, is that the imperfections to which he has referred are very likely relieved by the earlier provisions of that section, fixing the machinery for avoiding the double Income Tax beyond a certain degree, and, as far as I can see at the 1771 moment, the effect of those provisions as regards relief from the payment of double Income Tax would operate to remove an inequality of the sort to which he was referring in connection with the Corporation Profits Tax, but the point, undoubtedly, is one of interest and concern 1772 to the companies which pay the tax, and I will take the opportunity of ascertaining exactly how the matter stands before we come to consider it on Report.