§ There shall be exempted from Income Tax the income of a non-resident alien or foreign corporation which consists exclusively in earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption in respect of shipping registered in the United Kingdom.—[Mr. Alexander Shaw.]
§ Brought up, and read the First time.
§ Mr. A. SHAWI beg to move, "That the Clause be read a Second time."
The short effect of this Clause is to exempt from Income Tax in this country the shipping to foreign countries which 1364 grant the same exemption to Great Britain. The wording of the Clause follows almost in exact terms that of a Clause which was inserted in the United States Finance Act last year, and which became law in November. As this is a somewhat new matter perhaps the House will forgive me if I indicate what its history has been. The practice of all the nations in the world for long was in effect that the profits made by ships were earned not in any country or in any port, but on the high seas outside territorial waters, and that therefore the sound rule of taxation to apply was that each country should tax its own shipping and no country should try to tax the 1365 shipping of other countries. As long as that rule was adhered to it was the same for everybody and we had the freedom of the seas. But in 1916, under the stress of war conditions, unfortunately we in Great Britain reached out our hands beyond our own shipping and began to tax the shipping of foreign countries which put into our ports. That lasted without retaliation only for a very short time. Presently the United States retaliated and levied upon British shipping in the United States taxation of a character which was very formidable indeed. Unfortunately, visà vis the United States, we have this position: that some of their ships are owned by the Government and we do not tax foreign Governments they are exempt. Others of their ships, unfortunately for them and perhaps unfortunately for the world, are making a loss. In fact the United States shipping as a whole is making a loss. So that Great Britain gains nothing; yet Great Britain, by being taxed in the ports of the United States, loses enormously. So visàvis the United States, the Chancellor of the Exchequer will lose nothing by accepting this Clause.
But that is not all. The Norwegians— I think diplomatic representations have been made, or are being made, on the subject—bitterly resented the new system of taxation which we set up. Norway has taken the power to retaliate and to levy Income Tax upon British ships. The other Scandinavian countries are considering following suit in the very near future. In fact, it is only too likely that we are within measurable distance of a time when every country in the world will not only tax its own shipping, but will place a tax on the shipping of every other country which uses its ports. The House will see that in that situation there will be a very formidable menace indeed to British trade, because in the sharp-shooting with which we are threatened, the British Mercantile Marine will offer by far the largest target and will suffer by far the most. There is, in fact, something like a tax warfare threatened, a new form of warfare in the history of the world. Take the case of a ship which touches at six or seven ports in different countries in the course of a voyage. It will find a tax-gatherer waiting for it in every port, a tax- gather who will have to adminis- 1366 ter the complex Regulations of his own country. Things will soon reach such a pitch that they will be grave danger of ships being delayed, if not, indeed, seized, because of the ignorance of the-master of the complicated regulations of Income Tax in the different countries with which he trades.
Personally, I find it very difficult to understand the intricacies of our own Income Tax laws. I was told the other day by an eminent barrister that he did not understand them, and he said that there were only two men at the English bar who did. What is to be the position of the master of a British ship who is anxious to carry on his voyage? If this sort of thing springs up the masters of British ships will have to be chosen entirely from the ranks of the law. That might be a very good thing for the Bar, but I am not sure that it would be a good thing for ships. At any rate, apart from the difficulty of complying with a network of complicated and varying regulations from country to country, there will be in all this a very serious burden. The burden will not consist entirely of the deduction from the profits actually made. It is obvious a considerable sum would have to be paid in certain countries on account of profits made, or presumed to have been made, there, while if that voyage were taken as a whole, it might be found, that the voyage had resulted in a very serious loss. A voyage may result in an actual loss and yet during that voyage the ship owner may become liable for considerable sums by way of Income Tax.
There is another aspect of the question. There are countries whose Income Tax law presumes that if you are in trade at all, you are making a profit. Unfortunately no presumption could be wider of the mark in these days. Our own Dominion of Australia is an example of that because there, whether you make a profit or loss, they simply look at the amount of the earnings of a British ship; they presume that 10 per cent. of that is profit, and they assess Income Tax on that 10 per cent. whether a profit has been made or not. One might remark in passing that their own Government's ships are not subject to taxation in this country and that they have other immunities which do not belong to private shipowners, either of Great Britain or of 1367 foreign lands. Here we have a new and very serious burden falling upon international trade. It is a burden not entirely borne by the shipowner. It is inevitably a burden upon the cargoes carried and therefore it becomes a burden upon the food and materials used by the consumer in this country. That is not all. At the same time, there is a great risk of loss to the Exchequer, arising from the effect upon the general trade of the country of such a system of tax warfare. It would sap the vitality of British trade generally, as well as inflicting loss of a more direct character. The operation of a system of tax warfare at this time will add seriously to the cost of carrying on shipping business, and as it inflates the cost of carrying on the business, so it will decrease the amount of income susceptible to British Income Tax. If the system develops far enough, the Chancellor of the Exchequer will find that he cannot gain anything by continuing the taxation of foreign ships, and that in fact the taxation involves a loss which, in time to come, may be very heavy. The total result of continuing this system is that no Government would, in the long run, be advantaged, and international trade would be seriously handicapped and disputes would be inevitable. We cannot conceal from ourselves the fact that the disputes which would arise from inflamed irritation in every port might cause exceedingly serious international friction. Disputes of a constant character between the nationals of various countries inevitably lead to serious friction between the Governments, and that has been one of the most fruitful causes of wars in the past. The prospect is not alluring, and the formidable risks and difficulties ahead of us have been engaging the earnest attention of thoughtful people in every maritime country in the world. May I read a resolution passed, not by a national, but by an international shipping conference that met in November of last year? There were delegates present from America, Australia, Belgium, Canada, Denmark, France, Germany, Holland, Italy, Japan, Norway, Spain, Sweden, and Great Britain. [HON. MEMBERS: "And Russia !"] Unfortunately, Russia was not represented, but if Russian shipping were run at a profit I am quite sure Russians would not be willing to 1368 part with any part of their profit to the Government of this country. The resolution which the delegates of these different-countries passed unanimously was as follows:
Whilst the shipping industry recognises its obligations to bear its full share of taxation it is economically impossible for the individual shipowner to bear that burden in each of the countries to which his vessels sail. It is, therefore, desirable in the interests of international trade that legislation be encouraged in every maritime country in the world giving immunity from taxation in respect of the earnings of foreign shipping in all cases where similar immunity is reciprocally given.This resolution has already been acted upon by the United States. Its terms have been embodied in the law of the States. The Americans have held out the hand of friendship to us in this matter, and I cannot help thinking that it would greatly tend to improve our relations with America at a somewhat critical time if we, with our maritime trade, could see our way, through the Chancellor, to accept this proposition. The moment that this rule of reciprocity in exemption is applied, the prospect— and indeed certainty—of international friction and the complications and expenses of this added burden on the cargo disappears in a moment.The United States have already acted in the sense of this resolution, and have offered us reciprocity. Is it too much to hope that the Chancellor of the Exchequer will see his way to accept that offer? It is not put forward as a request from shipowners alone. It comes from the Chambers of Commerce all over the country. This has not been pressed on this Government alone. It has been pressed on every Government in the world. I would remind the Chancellor of this, that we alone among the countries actually levy taxation upon foreign shipping without this provision for exemption, and if we pass this Clause to-night, we shall have ended a menace which is causing very great anxiety not only to shipowners but to traders in all parts of the world.
§ Mr. HANNONI beg to second the Motion. May I say at once that this proposal to establish reciprocal relations with the United States, and, indeed, with the other countries throughout the world is not merely brought forward on the part of the shipping industry of this country, 1369 but by the whole commercial community. I do not think there has ever been a time when it was more necessary to give the fullest effect to the opportunity of developing British shipping than it is to-day. Our shipping industry has suffered a serious set-back for several months past. This Clause, embodied in the Finance Bill, and receiving sympathetic treatment at the hands of the Chancellor of the Exchequer, would give an impetus to British shipping in the near future. We are desiring a closer relationship with America and here is an opportunity for a reciprocal arrangement which will commend itself to them. The shipping industry of this country in the past has been one of our greatest assets, and we should not lose any opportunity of giving it a chance in the future of retaining that position. The hon. Member who has just sat down has so completely covered this case, and his speech has been so cogent and full of facts and thought that I feel sure that the Chancellor of the Exchequer will see his way to meet the proposal embodied in this Clause and accept it.
§ Mr. W. GRAHAMI earnestly trust that, before the Chancellor of the Exchequer considers the arguments which have been put forward in favour of this proposal, he will keep the important points in mind which have been discussed at great length in recent times. I entirely agree with every proposal which could be put forward to render international trade as free as possible, but the fundamental fact which we have to keep in mind in this connection is that here we have a very large volume of international commerce which, if Resolutions of this kind were adopted, would be automatically exempted from taxation. That may be right or wrong, but under existing conditions the various Governments of the world have to raise money somehow, and they have to be certain that they are raising it on a broad and comprehensive basis as regards trade carried on upon the high seas and outside and as regards trade within the country itself. That is a preliminary consideration in this respect.
There are other preliminary considerations we might mention, but as there is not time it will be better now to pass at once to the other part of my hon. Friend's argument. He cited the case of the United States of America, and of course 1370 what we have in mind is the recent experience of the United States Shipping Board. The taxation of oversea commerce was considered by the Royal Commission on the Income Tax, and having made certain observations upon it I think they indicated that this was a very large problem which must be considered as a whole, and they were not in a position to lay down any immediate recommendations for the Government of this country. Since that time the matter has been considered by another smaller and, I think, on the whole, an expert Committee. The Report of that Committee has not been published, and therefore I cannot discuss it here to-night, but there are certain broad considerations with which we are all familiar.
As regards the United States Shipping Board, the problem arises in this form that we have to distinguish between what we might call the trade activity of people enjoying diplomatic immunities and trade by Governments in competition with ordinary trade. That is a very important difficulty. I am bound to say at once if we start to try and solve this problem by pushing into the Finance Act of this year the Clause which my hon. Friend has proposed, we shall land ourselves in very serious difficulties indeed. There are certain courses we must adopt. I think personally as a result of the inquiries which were made, the solution will be found along these lines. First we have to try to arrive at a common goal within the Empire itself. That may be a matter for the Imperial Conference or any other kind of organisation within the Empire appropriate to deal with it. And then if the Empire chooses to be a leader in the matter, we can appeal with greater force to other nations. It might become an appropriate problem for the economic side of the League of Nations itself, but in any case we could not solve it by the mere plea of reciprocity contained in the Clause.
If my hon. Friend will look a little more closely at the Clause, he will agree in practice it might not give reciprocity at all. I understand by that something which works out a rough equality as regards the sacrifice which each country makes. A very great deal depends on the volume of trade in different countries, and much also depends on the incidence of taxation in these countries imposing 1371 the tax, and it may work out that there will be a very considerable sacrifice on the part of some countries and very little sacrifice on the part of others. All these things must be considered. Broadly, the problem is that we have not separated yet the immunities which displomatists enjoy from the taxation which it has been the practice in many cases of late to impose on purely trading undertakings. I hope the Government will share our convictions on this point. I am going to appeal to my hon. Friend not to press the Clause for this reason, that first we must make the further inquiries the Royal Commission recommends, and, in the second place, this House is entitled to see at the earliest possible moment, the Report of the small Committee—the very representative Committee—which for a considerable time made anxious investigation into this matter, and on whose Report the Chancellor of the Exchequer has not yet been in a position to act. Until we have that information, and until the House has had an opportunity of considering the Report, I hope my hon. Friend will not press the Clause, which, I believe, so far from securing the object he has in view, will actually delay it.
§ Mr. WISEI am sure we all agree that we should have all the information possible before passing this Clause, and I cannot help thinking there should be no delay in accepting the suggestion put forward by the last speaker, because shipping is, I suppose, our greatest asset. The War proved to us that it was the life-blood of the country, and when we consider we have more ships than any other country, we must be most careful to maintain the position we have held in the past.
My hon. Friend referred to Income Tax exemption of shipping within the Empire. I am in favour of that, but, at the same time, we must remember that our Colonies have not a great number of ships. The action that is being taken by other Powers is well worth considering, and I have here a circular stating exactly what other Powers are doing in reference to the Clause which is put forward by the hon. Member for Kilmarnock. Australia and New Zealand, which would come within the Empire scheme referred to by the 1372 hon. Member for Central Edinburgh (Mr. W. Graham), charge Income Tax on the profits earned by shipping, including ships registered in the United Kingdom, both within and without those countries. Norway has been referred to. In Holland, which has a great deal of shipping, foreign shipping is free from Income Tax; and the same prevails in Denmark In France, up to the present time, the French Treasury have not followed up the recovery of this tax on foreign shipping undertakings. In Germany, where we want all the taxation possible, no Income Tax is charged on the earnings of foreign ships, shipping companies, and shipowners not domiciled in Germany. In Belgium there is no tax levied In Canada, British and foreign steamship companies incorporated elsewhere than in Canada, and whose steamers are not registered in Canada, are not liable to taxation, provided that the companies' business is limited to carrying articles to and from Canada. In Finland there is no taxation. I think that that shows plainly the essential point with regard to shipping companies. One letter that I had from a big firm informed me that the United States Government were not satisfied with the taxation charged in New York on this particular firm, and they actually sent a man over to London to check the figures. I cannot help thinking that, in the light of what I have endeavoured to show is being done by other countries, a Clause of this sort should have the sympathy of the Chancellor of the Exchequer.
§ Sir R. HORNEMy hon. Friend the Member for Kilmarnock (Mr. A. Shaw) has raised what is probably the most important question with which we have been confronted in the course of these Debates, and has made a speech upon the topic which, if I may be allowed to say so, must have commended itself to the House, both by its lucidity and cogency and by the eloquence with which he argued tie point. Before, however, I go on to deal with the precise merits of the question, I should like just to refer to one or two matters on which I think my hon. Friend rather dropped into error. He suggested that the taxation upon shipping profits and upon shipping companies registered in other countries only began in 1916, and that prior to that date there was complete immunity from taxation in the case 1373 of foreign shipping companies in this country. That statement is, I am afraid, not entirely accurate. In point of fact, shipping companies, like all other foreign companies carrying on business in this country, have been taxed since 1842. Wherever a shipping company had an agency in this country, where the agent took the profits and gains of the operations of his company in this country, he was subject to the same taxation as everyone else in this country who obtained profits and gains from commercial transactions. The only difference that was made in 1916 was that there was included in that category, not merely the agent who took profits and gains from the company, but also any agent who carried out the transaction. That was the only difference that was made. Accordingly, I hope the House will keep it clearly in view that foreign shipping companies have been regularly taxed in this country, like any other foreign company carrying on business here, ever since 1842, and that it is no new thing with which we are dealing this evening. One might have gathered from my hon. Friend's speech that every tramp steamer calling at an occasional port would immediately become subject to taxation in this country.
§ Mr. A. SHAWNot an occasional tramp.
§ Sir R. HORNEI am sorry if I misapprehended the statement of the hon. Gentleman. It is perfectly plain that that does not take place. It is only in the case of the steamers regularly trading with this country, and of some of the shipping and regular agencies that any taxation is imposed at all. There is one other point for comment. The hon. Gentleman rather suggested that we alone, of all countries in the world, gave no exemption in taxation to shipping companies trading to this country. The list read by the hon. Member for Ilford (Mr. Wise) shows that that is not quite accurate, either, and that there are in many other countries of the world—our Dominions amongst others—arrangements by which taxation is imposed on shipping companies carrying on business with their countries.
I want it to be perfectly clear that we are not doing anything exceptional compared with what other countries are 1374 doing—though some countries do not follow our example—nor are we doing anything we have not done since the beginning of our Income Tax procedure.
§ Sir D. MACLEANWhat about the change in 1916?
§ Sir R. HORNEThe change effected in 1916 only made the agent, who carried out the contract and did not actually handle the money, bring his company equally within the ambit of our Income Tax law. It appears that when foreign companies discovered that only those agents brought them under the Income Tax law who handled profits, they immediately said that those agents should not touch money, but should only carry out their contracts. In that way they evaded the law. That was put right by the arrangement of 1916, whereby the agent who simply carried out the contract equally brought his company within the region of our law.
I pass to some of the other considerations. I agree at once that, primá facie, you might say Britain stood to gain a great advantage from the proposal of my hon. Friend. We have the greatest mercantile marine in the world, and, therefore, taking the case of the United States of America alone, we have more ships to do business in the United States than they send here. Obviously, on the face of it, it would be to our advantage to enter into some such reciprocial arrangement as is suggested in this Clause. Once you have said that, however, I think you have exhausted the merits of this proposal. There are many considerations on the other side of which you have to take note. In the first place, it is difficult to decide whether you could stop this arrangement at one industry.
11.0 P.M.
Shipping is not the only industry which is carried on by other countries in our territory. There are many cases of other industries being carried on in this country, on whose behalf it might very well be said that their profits should be immune from the Income Tax law of this country, and if we start upon this process, be it good or bad, we may very readily have proposals made to obtain reciprocal arrangements, not merely with regard to agents carrying on one trade, but with regard to agents carrying on many other trades. I do not at the present moment dare to 1375 say with any confidence that it is a good plan or a bad plan—whether that system, if developed, might be advantageous or, on the other hand, disadvantageous. I do not think anyone at present is able to make up his mind, because you would be opening a vista of problems by embarking on this great question. All that you can say is that it makes a complete reversal of our Income Tax policy. We seek to obtain Income Tax upon profits made by everyone who is carrying on business in this country. If you make an exception in favour of one particular trade, it is very difficult to say that you will stop it at that trade. I only throw that out for the moment for the consideration of the House, because I do not pretend to offer the House any advice as to the judgment to which we should ultimately come upon that topic. It is obviously a very grave and far-reaching question, which requires a great deal more consideration than we have yet given it.
There are other reasons which make me hesitate to give the House any guidance upon this question to-night. It is obviously a question, as my hon. Friend the Member for Central Edinburgh has said, which affects the whole of the Dominions of the Crown. It would be, for example, an exceedingly awkward situation if the Americans asked for some reciprocal arrangement for their ships to come into our ports under more advantageous terms than ships of the Dominions. Obviously, therefore, this question requires serious consideration between the Mother country and the Dominions before arriving at any settled conclusion on the subject. There is another consideration which has not been mentioned, but which is worth noting. The United States of America at the present time is initiating legislation upon the shipping question, which has very, very far-reaching effects, and which is causing extreme anxiety to many shipowners of this country. I think the House will be in agreement with me, that before we come to a conclusion upon this particular topic, we should see, and be able to estimate, the full effect of all that is going to be done by our neighbours with regard to this very important matter. Finally, I would venture to suggest to the House, while not expressing any disagreement at all with the proposal that is put forward, 1376 that this is a topic of such large importance, that we should be very ill-advised at the present time to come to a settled conviction upon the matter, and, while willing to give it every attention in the future, with a view of arriving at a solution, after consultation with all concerned in it, we should to-night not press a decision upon this matter.
§ Sir D. MACLEANIt is quite clear from what the Chancellor of the Exchequer has said that the House is not fully possessed of the necessary information to come to a decision upon this important matter. In so far as this Clause would uproot the Income Tax machinery established in 1842, and continuing down to 1916, I am certain the hon. Member who moved the Clause would not desire to do that. As I understand it, it was the change in 1916 to which he draws attention. I presume the change in 1916 arose out of the fact that foreign shipping here were enabled to escape Income Tax by shifting the titular form of their agents, and as they were earning, very largely at our expense, immense sums, and in carrying in neutral bottoms cargoes to and from this country, naturally, our authorities desired to bring them within the scope of the taxation of this country. That was a perfectly right and proper thing to do: but in so far as the carrying on of that change affects—and my hon. Friend made out a case of real importance—the power of hitting our shipping in all parts of the world, it is a matter for very serious consideration by His Majesty's Government as to how that can be met. As I understood the speech made by the hon. Member for Central Edinburgh (Mr. W. Graham), the question is engaging the attention of the Committee which is considering the financial effect of the Income Tax laws and their general operation. I hoped my hon. Friend would press the matter to a Division, after I had heard his speech, but after hearing what the Chancellor of the Exchequer has said I agree with him that the matter ought not to be decided by the House to-night.
§ Mr. INSKIPThis subject excites great interest in the city which I represent, but I intervene not only on that account, but because it is a matter of the greatest importance. I do not quite follow the right hon. Member for Peebles 1377 (Sir D. Maclean) when he says that the Chancellor of the Exchequer's reasons, weighty though they were, have converted him to the postponement of this important decision. The hon. Member for Central Edinburgh (Mr. W. Graham) suggested that because the House is shortly to be in possession of the decision of the Committee of which he is a member, the House should wait for further information. As I understand the matter, that Committee has nothing whatever to do with this question of Income Tax. It is considering a question with which lawyers have been very familiar in the Courts for the last few years, as to what are called public ships.
§ Sir R. HORNEIt is a matter of very great importance relevant to this question. One of the difficulties under the present condition is this, that the Government ships of other nations are allowed to come in here without being subject to taxation, and that is one of the matters complained about by shipowners. If that fact were absent, it is possible that a change of view might take place. I do not say it is certain that it would, but it would have some effect. That is one of the matters upon which the Committee is reporting.
§ Mr. INSKIPThe question of the immunity of Government ships, or public ships as we call them in the Courts, is really distinct from this question. It is an absolutely separate question, whether Government or public ships are to have certain immunities in future. It is a class of vessel much more in vogue than it was a few years ago, when the only Government ships were warships and ships of that kind. The Committee may or may not recommend their immunity from Income Tax. This is one of those questions which every House is inclined to postpone because it is difficult, and until it has more information, in the hope that at some future date it will be in a better position to come to a decision. It is one of those questions upon which the House some day will look back and regret that they were not ready to come to a decision. As to the Dominions, I cannot anticipate that there will be any difficulty. Does anybody imagine that if we indicate that we are prepared to give reciprocity there will be any difficulty in meeting the Dominions and getting from them the 1378 reciprocity we are prepared to give to foreign countries?
§ Sir R. HORNEIs my hon. and learned Friend qualified to speak for Australia?
§ Mr. INSKIPI am not qualified to speak for anyone except myself. I am only expressing an opinion. We ought to know what the position will be in respect to these foreign countries. Legislation recently introduced by the United States has caused great apprehension in this country, but I cannot admit that it will increase the likelihood that that legislation will be passed against this country if we show willingness to reduce the rigour, and the best way of doing that is by showing a peaceable disposition in such matters as this, in which we can come to an agreement. The United States has made an offer and it has been embodied in legislation. Are we prepared to accept it or not'? There is no other country except the United States where this form of taxation is in vogue. The question is no bigger yet than a cloud on the horizon, but we see how the cloud is likely to grow in seriousness. It would be much the better course to accept the offer made. I hope my right hon. Friend will not postpone the matter. It has been for some months under the consideration of the Treasury and some other Government Departments. It has not been sprung on the House. If they are not in a position to come to a decision now, they will not be in a position to do so in some months or in a year's time. Now is the time.
§ Mr. A. SHAWI had hoped that in view of the feeling on both sides of the House the Chancellor would have accepted the Clause. But as he has not, then in response to what he has said I ask leave to withdraw.
§ Question, "That the Clause be read a Second time," put, and negatived.