§ "(1) If His Majesty in Council is pleased to declare—
- (a) that any profits or gains arising from the business of shipping which are chargeable to British Income Tax are also chargeable to Income Tax payable under the law in force in any foreign State; and
- (b) that arrangements, as specified in the declaration, have been made with the Government of that foreign State with a view to the granting of relief in cases where such profits and gains are chargeable both to British Income Tax and to the Income Tax payable in the foreign State;
§ (2) Any declaration made by His Majesty in Council under this Section shall be laid before the Commons House of Parliament as soon as may be after it is made, and, if an Address is presented to His Majesty by that House within twenty-one days on which that House has sat next after the declaration is laid before it praying that the declaration may be revoked, His Majesty in Council may revoke the declaration, and the arrangements specified in the declaration shall thereupon cease to have effect, but without prejudice to the validity of anything previously done thereunder or to the making of a new declaration.
§ (3) The obligation as to secrecy imposed by any enactment with regard to Income Tax shall not prevent the disclosure to any authorised officer of the foreign State mentioned in the declaration of such facts as may be necessary to enable relief to be duly given in accordance with the arrangements specified in the declaration.
§ (4) In this Section the expression 'business of shipping' means the business carried on by an owner of ships, and for the purposes of this definition the expression 'owner' includes any charterer to whom a ship is demised."—[Sir W. Joynson-Hicks.]
§ Brought up, and read the First time.
§ Sir W. JOYNSON-HICKS
I beg to move, "That the Clause be read a Second time."
94 This is quite a new Clause and one which I think I ought to explain to the House, because it is introducing a new principle in financial legislation. The House knows there has been considerable difficulty for many years on the question of double taxation between this country and foreign countries. They also know, I think, that the League of Nations has set up a Committee to consider this whole question of whether an arrangement cannot be arrived at between all the countries of the world to prevent double taxation. I think the Committee of the League of Nations must necessarily take some considerable time before they arrive at any decision, until mutual legislation has been achieved in all the countries of the world. We have had under very careful consideration the question of double taxation on shipping. Obviously, shipping is more severely hit than any other industry by double taxation. Ships, whether they be English or the ships of other nations, travel to all ports of the world and do business in almost every foreign country, and they have to make return for Income Tax on any profits they may earn, whether in South America, North America, or any other place. It is not only a question of the amount of double taxation they suffer from, but it is the enormous complexity of every kind of return which our shipping companies have to make all over the world.
The United States has had this matter in hand, and in 1921 they passed a law to exempt from Income Tax the shipping of any foreign country which was ready to grant equivalent exemption. That is the first olive branch that has been held out to us by any foreign country. The Chamber of Shipping of Great Britain very carefully considered this proposal, and then they came and saw His Majesty's Government to consider whether or not it would be possible for us to accept the olive branch and grant the same kind of exemption from Income Tax for American shipping as America is prepared to grant to British shipping. His Majesty's Government, and the Chancellor of the Exchequer in particular, very carefully considered this, and they have come to the conclusion that in the interests of the shipping trade of this country it is highly desirable to take every possible step we can to get rid of this very troublesome system of double taxation. I hope that if this 95 Clause be accepted by the House and it proves to be a success, it will be merely a forerunner of a larger scheme of legislation which would exempt all trades from double taxation throughout the world.
We are beginning with shipping, and we are to make this experiment. We propose to do it by taking powers to His Majesty in Council to make an Order in Council, after negotiations have taken place with any foreign country, exempting the shipping of that foreign country from paying Income Tax in this country. Obviously it is impossible to put a Clause in a Finance Bill making this matter conclusive the moment the Finance Bill is passed, because it depends upon negotiations with foreign countries. We are adopting the same course as we adopted in regard to the Irish Free State legislation; that is, after a Treaty is made, His Majesty, by Order in Council, may make it as binding as an Act of Parliament. I have provided in the terms of this Clause that the Order in Council shall be laid on the Table of this House within twenty-one days, so that it cannot be carried into law if the House objects. We are providing that the Executive cannot pass this into law until the House consents, but the House will recognise that we must have a treaty first with the United States, or with any other foreign country. I ask the House to let this Clause pass, partly because it is desired by the shipping community, partly because it will give a valuable fillip to the League of Nations, and partly because I think it will do real good to our shipping industry. I hope it will lead to dealing with this troublesome question of double taxation, not only between ourselves and the United States, but between all the countries of the world.
§ Mr. WILLIAM GRAHAM
The Financial Secretary, in introducing this new Clause on the Report stage, properly apologises for introducing a matter of such importance at this point in our proceedings. This new Clause differs from all other Clauses on the Report stage in that it raises a matter of first-class importance regarding our Income Tax system, and I hardly think that hon. Members will agree either to pass the Clause, or to support it afterwards, without very careful consideration. In regard to shipping, I should like to recall 96 the inquiry which was made under the auspices of a Committee presided over by Lord Colwyn. The proceedings took place in 1921, and the Report was issued in 1922. That Report turned on the trading of Governments, foreign and Dominion, and raised this particular problem of shipping. Hon. Members will recall that there are classes of ships known as public ships, which enjoy sovereign immunity. During the War there were in existence the United States Shipping Board, in a quasi-sovereign capacity, which raised very difficult problems as to how the trading of that great organisation should be taxed, and how far it had ceased to be in, if it ever was in, a sovereign capacity.
The recommendation of the Committee was that everything in the nature of trade by foreign and Dominion Governments should be taxed. That principle was quite clearly laid down. Up to the present time we have had no public reference to that report on the part of the Government, until the matter has been raised indirectly by the New Clause which the Financial Secretary now proposes. I take it that the whole problem of public ships and the trading of these vessels under Government auspices during the War has been practically solved by the disappearance of war-time conditions, on the principle embodied in the Report of the Committee. The second stage in the problem was reached in the Report of the Royal Commission on Income Tax in 1919. The Royal Commission drew a very sharp distinction between the treatment of our Dominions and Colonies on the one side in the matter of double taxation, and the treatment of foreign countries on the other. Although it is not strictly relevant, I should like to mention what was done in regard to the Dominions, in order to put the question regarding foreign government, because the two problems are bound up together.
The Royal Commission said as regards double Income Tax within the Empire—and this was a subject of anxious inquiry by a Sub-Committee of the Royal Commission—that there should be relief equivalent to the lower of the two rates in force, but they also said that any relief that was given should not exceed one-half of the rate of Income Tax imposed in Great Britain. They also urged, beyond that, that if anything was 97 required in order to make up the relief on the concession on the first point that that should be forthcoming from the Dominion Governments. I mention that for this reason, that when we came to consider the position of the foreign Governments in the matter of double taxation we came to the conclusion that at this stage it was quite impossible to make any recommendations. A clear distinction was drawn between the Empire and foreign Governments. There were within the Empire certain common interests in finance, all of which were provided from taxation generally within the Empire, but as between this country and foreign Governments there was no such community of interest, and there was no such community in taxation or revenue. We recommended that it was impossible to make any statement regarding the foreign Governments, but we did say—and I take it that it is broadly on this that the Financial Secretary is founding his case—that if it was possible to arrive at arrangements with foreign Governments in this matter this might be the basis, under the auspices of the League of Nations, of a solution of this undoubtedly grave problem.
I take it that nobody wants to impose double taxation upon the same trade, but we must be perfectly sure that we in Great Britain are getting a fair bargain, that there is substantial reciprocity, and that we are not losing on the transaction. The difficulty about the proposal which the Financial Secretary is making is that, in the first place, it is made very late, almost at the last stage of the Finance Bill, and we have not proper means of estimating its advantages or disadvantages. In the second place, it violates the recommendation of the Royal Commission on this point as regards foreign countries. The recommendation of the Royal Commission in regard to these arrangements applied to trade as a whole, and not merely to one section of trade as represented by shipping. I agree with the Financial Secretary that we find perhaps a supreme example of this difficulty in shipping, because that is a thing which links us to foreign countries and foreign countries to us. The Royal Commission had in mind a general scheme which would apply to trade as a whole between foreign countries and this country, and they did not suggest an 98 isolated arrangement in regard to shipping or any other industry on the lines which the right hon. Gentleman now proposes.
What will be the inevitable result of this proposal? Let us suppose that we get an arrangement as regards shipping with the United States of America. Is it possible to separate that relief in taxation from the taxation of other classes of trade between the two countries which will continue presumably on the double basis? It is perfectly impossible to adopt a special or specific arrangement of this kind in regard to one trade without doing damage or disadvantage or harm or, at least, inflicting hardship on other classes of industry and commerce proceeding between the United States of America and ourselves. The Financial Secretary, no doubt, appreciates the difficulties of the case, because he has hedged the proposal with all kinds of qualifications. It is to come to the House for ultimate ratification, on the 21 days' basis. We all know perfectly well what that protection means in the House of Commons. It means discussion, after 11 o'clock at night, upon a highly technical problem, when it is very difficult to keep a House, and when it is practically impossible to measure the gain or loss which this country is incurring on the transaction. I do not oppose the proposal on the question of principle, but I do most seriously oppose it on the question of method, and I hope, before the Debate closes, that the Financial Secretary will be able to give us a much more complete statement in regard to the points I have raised than we have so far received.
§ Mr. HANNON
I strongly support the Financial Secretary in introducing this New Clause. Although the points raised by my hon. Friend who has just sat down have very considerable substance, it is a fact that the introduction of this legislation was very fully discussed in the House last year, and on both sides there was a general feeling that something should be done to give relief in respect of double taxation to the great shipping industry of this country. It was exceedingly difficult to take any step forward until the United States had passed its law in 1921. Since then those of us who were interested in safeguarding the interests of our shipping, which is the greatest of our national 99 enterprises, felt that it was necessary to press the Government to take some step on the basis of the Debate last year following up what the United States had done. The reference made by the hon. Member for Central Edinburgh (Mr. Graham) about bringing our Dominions into consideration on this question in the present Finance Bill will not, I trust, have any influence with the Financial Secretary. Any concession we can make at this moment to the shipping industry of this country will be a godsend, not merely to the shipping industry itself but to everything that attaches to the shipping industry. This measure of relief is being brought forward at a moment when it is of the greatest interest and service to the shipping industry, and while I agree that it may be ultimately necessary to carry out the recommendations of the Colwyn Committee, or the collateral recommendations of the Commission on Income Tax, we shall make a beginning in the direction which will be of great benefit to this country if the proposed concession is now made. I hope that my hon. Friend, who is so greatly interested in our industries, and whose splendid work on the Income Tax Commission has evoked the admiration of this House will not stand in the way of this concession to the shipping industry.
Mr. HILTON YOUNG
It is within the memory of the House that this subject was reserved from consideration, as it were, by the right hon. Member for Hillhead (Sir R. Horne) last year, with the idea, to put it frankly, of giving us time to watch the policy of the United States in the matter. I am glad to register on this occasion the feeling of relief that I find that it has been possible to come to this decision and to move forward in this matter. I welcome the Clause. It is with very great diffidence that I find myself in opposition to the hon. Member for Central Edinburgh, because his views upon financial matters and upon questions of Income Tax are always so clearly expressed, and almost always so sound. I found a great difficulty last year in entirely appreciating the course of his argument, and my hopes that that difficulty would be removed this year have not been quite fulfilled. He argues against this Clause partly on the ground of the recommendations of the Colwyn 100 Committee. Surely there is some misapprehension. The Clauses of the Report of that Committee are concerned with the important matter of public trading by Governments. Is not that irrelevant? It appears to me that it is. As I understand it, all the questions dealt with by that Committee were the questions of differentiating between publicly owned concerns and privately owned concerns.
§ Mr. W. GRAHAM
That is true. The difficulty arose in this way, that the Governments had really entered into the position of traders during the War. It was that trouble which we were trying to clear up. They were exactly in the position, for all practical purposes, of private trading concerns.
Those questions are quite untouched by the machinery of this Clause. There will be ample scope within the very wide permissive powers given by this Clause to carry into effect any differentiation which is recommended by the Colwyn Committee. He argues further—and, of course, it will have much weight with the House—that it is of great importance that careful watch should be kept to secure fair treatment to British interest's under the reciprocal Clauses in this arrangement. It appears to me that the true answer to that apprehension is also in the permissive character of these Clauses. I should be strongly opposed to tying down his Majesty's Treasury to a hard-and-fast line on such an arrangement as this. Supposing a foreign country had an Income Tax which, to put it rather extremely, was nothing but a bogus tax and desired to secure exemption of shipping in respect of the bogus tax, by waiving the bogus tax against our real tax, that would require special action, and I have no doubt that the advisers of the Government would be fully alive to it.
I think, on the whole, I have really less sympathy with my hon. Friend's argument, if I follow it further. He seems to be apprehensive of our moving in this matter step by step. This is a very wide and difficult, technical matter, the matter of double Income Tax, and if we can see one clear step, for goodness' sake, let us take it—one clear step that will not prejudice further steps. If it would prejudice further steps, I should be against taking it, but indeed I do not think so. The shipping industry is very 101 sharply marked off from all others. It stands on a very special footing in this respect. Transport industries are about the only industries which are necessarily international, and that appears to me to mark them off from others and to make them suitable for special treatment in this matter. The magnitude of the British interests I need not dwell upon. The whole topic is gaining fresh importance every day, because of the growing importance of Income Tax in foreign countries. Before the War our own and a few other countries' Income Taxes were the only substantial Income Tax burdens, but war burdens made Income Tax a matter of great fiscal moment in all countries. I am convinced that a time will come when it will be necessary, in the interests of industry as a whole, to secure some general working solution amongst all civilised nations for the avoidance of double Income Tax in all international industries, and I certainly welcome a start being made upon it in what I believe is a practical manner.
§ Sir J. BUTCHER
I cordially welcome this Clause as introducing, for the first time, so far as I know, an attempt to avoid double Income Tax by this country and a foreign country on trade. All Income Tax is more or less a burden upon trade, but double Income Tax may be very often sufficient to kill a trade, and, therefore, I welcome this attempt towards avoiding the undoubted evils of this tax. It appears to me that this Clause is somewhat nebulous in character, and I should like to see a little more definition in it. The important thing for us, when we are making an arrangement, and when there are shipping profits liable to Income Tax in this country and also, let us say, by way of illustration, in the United States, is: How are we to decide what profits are subject to Income Tax in the United States and what profits are subject to Income Tax here? That is the first, and a very important, question to decide, and perhaps my right hon. Friend the Financial Secretary to the Treasury will be able to tell us on what sort of principle he is going. In some cases it is possible to say that profits were derived in the States, and they would naturally be subject to Income Tax there, and the same with profits derived here, but, in the case of shipping, I think it would be very difficult.
§ Sir J. BUTCHER
Yes, but you are going to say that all those profits already subject to Income Tax in this country will be relieved to a certain extent, for this reason, that the profits you tax in this country will also be taxed in the United States, and, therefore, when you have shipping profits taxed in both countries, you are to make an arrangement by which there shall be some relief from the double tax. I want to know on what principle you are going to frame that relief. Are you going to say that half the profits, or some other proportion, earned by the shipping trade which are subject now to Income Tax in both countries is to be taxed in England and the rest in the United States? When we have decided what part of the profit is to be subject to British Income Tax and what part to the United States Income Tax, what relief are you going to give? We desire, of course, that this relief should be given in the interests of British trade, and so that the British Exchequer shall not lose too much, but I think we should have a statement from my right hon. Friend as to the general principles on which he will make these arrangements with the United States and the other foreign countries concerned, so that the House may fully realise that our interests as regards taxation will be protected.
§ Sir JOHN SIMON
The subject raised by this Clause is a very important subject, and I agree with my hon. and learned Friend the Member for York (Sir J. Butcher) that it is also a very difficult subject. Those of us who have had occasion to try to understand how the Income Tax really works in connection with cases of this sort will be the first to admit what a very difficult subject it is, and I do not rise for the purpose of opposing the Clause, but I think a little more discussion of the subject might be very useful, especially as the matter has been introduced only on the Report stage of the Finance Bill. May I first put to the Financial Secretary to the Treasury what may seem a minor point, though I think anybody who knows the way in which the shipping trade works will desire to be entirely clear about it? I want to put to him a point on Subsection (4) of 103 this Clause, where he defines the business of shipping as meaningthe business carried on by an owner of ships, and for the purposes of this definition the expression 'owner' includes any charterer to whom a ship is demised.The cases of that sort are very few indeed. There are two ways in which the owner of a ship allows it to be used by a charterer. In far the greater number of cases there is no demise of the ship whatever. There is a charter party entered into, and as a result of that agreement, whether it be for a period of time or whether it be for a number of voyages, the charterer of the ship can control what work the ship does, between what ports it sails, and what cargo it takes, according to the terms of the charter, but the ship is never demised to the charterer. The master of the ship and the crew of the ship are provided by the owner and continue to be the owners' servants, and he pays for them, and the expenses of working the ship are all expenses which, in the first instance, are met by the owner, and though it is true the owner is paid hire by the charterer, the charterer is not the person to whom the ship is demised.
There is a much less common case, in which the owner of a ship actually demises it, or lets it, like a man lets a house or any other piece of property, to a charterer, and in that case the charterer has the full possession of the ship, and uses it as if it were his own, and in that event the charterer in ordinary business is the person who appoints the master and crew and is responsible for all expenses. I think, though I speak merely from such knowledge as comes from having had to advise about these matters, that the shipping community will want to know whether, when you talk about the "business of shipping," you really mean to confine it to such business as is carried on by persons who are the owners of a ship, together with the comparatively rare cases in which the owner of a ship actually demises it to somebody else. If that be the case, you are excluding the great mass of the charterer's business altogether. It may be that you intend to do so. I point it out, because I think it would be lamentable if in the future we fell under rebuke from the Law Courts, where they do not 104 always know what our difficulties are in the way of legislation, and there was really any misunderstanding about it.
The second thing I would like to say is this. I do not know whether the hon. and learned Member for York has come personally across this shipping case in the practice of his own profession. I confess I have not very often myself, but the kind of case with which this Clause is meant to deal is the kind of case which it is a matter for the House of Commons to deal with, and to deal with in a broad way. The truth is that, now that Income Tax is so high, unless we can devise some arrangement which would prevent the burden of double Income Tax falling on companies carrying on business here, there is a common temptation for such enterprises to take themselves off and establish themselves somewhere else.
§ Sir J. SIMON
Yes. It is a most serious problem for anybody interested in the finances of the country. In my own experience, and in the experience of many lawyers I am sure, one has come across cases where one is consulted for the specific purpose: What must I do in order to change either the constitution or the way in which I am directing and managing this company in order that I may avoid what I am threatened with now, namely, the imposition of Income Tax by the British authorities upon the whole of my balance of profits and gains? And there are well-known cases within recent year in which the most elaborate arrangement has been made, in which people have moved themselves elsewhere, while still trying to carry on a portion of their business here in order to avoid the meshes of the Income Tax.
§ Mr. A. M. SAMUEL
The right hon. Gentleman must not carry his argument too far. I quite agree with him, but he must remember that if he carries it too far he brings mines abroad into that arrangement.
§ Sir J. SIMON
I do not quite know to what the hon. Gentleman refers, but I am talking about a very well-understood difficulty which for years has faced both the Treasury and those who have been con- 105 cerned to consider how the Income Tax works. My recollection, though I speak subject to correction, is that, so far as shipping was concerned, we did not, as a matter of fact, attempt to impose our own Income Tax upon the profits of foreign shipping that happened to visit our ports until about the year 1916. My broad point is this: It is most important that we should in this matter protect the British revenue if we can do so, and at the same time not encourage those who are disposed to make new arrangements to avoid the British revenue by moving elsewhere. The House has always to remember that, before the British Income Tax is imposed upon the profits or gains of a company, the question that has to be decided is not whether the company is registered under our own Companies Acts. That is not the relevant question. The relevant question is not whether the company is registered, but does the company really conduct its business, or is the head and seat of its business, here in this island? If so, the whole of its balance of profits and gains is liable to British Income Tax.
It is obviously in the interest of this country that we should have arrangements which will encourage people to carry on their business here. It makes our country the centre of a very important trade which otherwise it might not be to the same extent. It tends to provide employment and is an advantage to the revenue and to us all. Therefore it seems to me that the principle which is in this Clause is a principle which it is very desirable to apply, if that can be done, but I must, say I wish the Clause had been subjected to discussion in Committee and that we had more time to consider it. It is a very difficult subject and one is not content to accept at fist sight, a provision under which the whole thing is to be controlled by an Order in Council. That is a form of exemption from taxation by reference which a good many people feel is not the best, and looking at this Clause quite casually there are some considerable problems to be considered in it. May I put this point to the right hon. Gentleman? In the first Sub-section, having provided in the case of an Order in Council declaring that arrangements have been made with the government of the foreign state, for 106 the granting of relief, I notice the Clause proceeds:then unless and until the declaration is revoked by His Majesty in Council the arrangements specified therein shall so far as they relate to the relief to be granted from British Income Tax have effect as if enacted in this Act—Then it proceeds further, and I am not at the moment quite clear why——"but only if and so long as the arrangements, so far as they relate to the relief to be granted from the Income Tax payable in the foreign State, have the effect of law in the foreign State.Surely it must be for His Majesty in Council, by revoking the declaration, to decide when that point has been reached. The right hon. Gentleman cannot mean that there is going to be litigation in the English Courts between the Revenue and the shipping companies, on the issue, "Are these arrangements, arrangements which still have the effect of law in the foreign State?" That cannot be a matter for an English Court to determine. That must all be governed by the judgment of the Government in securing a revocation of the Order in Council. I am not picking holes for the mere sake of picking holes, but it seems to me that this Clause is worthy of a longer consideration than we can give it to-day. The main point I rose to make is that it is clearly in the interests of good democratic government that we should, so far as we can, secure that people who carry on their business in our country are not penalised for so doing by having to pay a double tax. It is in the interests of good government that we should put before them an inducement not to go elsewhere. For these reasons I support the principle of the Clause. I confess I am much puzzled by the definition of "business of shipping" at the end, and its application in relation to all sorts of shipping companies, whose ships are held under charter, and I think there are other details which deserve a little more discussion.
§ Mr. GOULD
I entirely agree with what has been said, but I think we should be very careful with regard to Sub-section (4), containing the definition applying to an owner or charterer. It is customary in the American shipping trade to charter boats on what we call the bare-bottom basis, whereby the ship is taken as it stands, without any crew or anything at all, but a hiring figure is fixed for the vessel without equipment 107 or crew. The vast majority of time-charter business is done on a basis whereby the crew is taken over, stores are provided and a rate is fixed to cover that expenditure. Most of these time charterers use the chartered vessels to take the place of other vessels which they cannot put into the service. If the Clause is left as it stands, the time charterer, employing another man's vessel in his own trade is going to be exempted from the provisions of the Amendment and the right hon. Gentleman should be very careful in seeing that the time charterer, as distinct from the voyage charterer, gets the benefit of the Amendment.
§ Sir W. JOYNSON-HICKS
I am quite prepared to move the omission of the last six words, "to whom a ship is demised," and then the Clause will include any charterer. I think that should meet the objections which have been raised.
§ Mr. ALEXANDER SHAW
As I have been specially interested in this subject, perhaps the House will forgive me if I refer to the general problem which this Clause is designed to solve. The problem arose in this way. In the year 1916 this country tightened up taxation upon agents generally and it was found that there was brought into the net of the tax gatherer here the profits of companies or individuals owning any ship which touched at a British port. In theory we had power to do so before but, in effect, we only began to tax foreign shipping then and it was not very long before the foreigners began to retaliate. Almost immediately, Norway armed herself with powers to impose Income Tax upon the profits of British shipping. The United States acted very soon and levied a tax upon British shipping which has been, and continues to be, a tremendous burden, not only because of its severe fiscal character, but because of the endless complications imposed on those who conduct the business of British shipping in the United States. Only a few weeks ago a gentleman, whose name I will not give, but who conducts in the United States the management of one of the greatest lines in the world—with which I have no connection whatever—told me in the hearing of the Prime Minister, while on a deputation to the right hon. Gentleman on this subject, that the complications of the American tax system were so great that he, the manager of this great steam- 108 ship line, spent more time in complying with the requirements of American assessments and the complications of American tax law than he was able to devote to running his fleet of ships.
Not only with regard to the United States, but with regard to other countries also, there are, springing up throughout the world, the symptoms of a tax war, and the result of that will be, as the House must appreciate, that as British shipping offers by far the greatest target, compared with any other shipping in the world, it will be much the worst hit. At every port to which British shipping goes in foreign lands, there will be a tax gatherer awaiting it. If it goes to Norway, Spain, Portugal, France, Italy or any of our great Dominions, it will be faced with the appalling prospect of complying with the exceedingly intricate and often completely conflicting codes of taxation which obtain in those various countries. That is not the end of it. Unfortunately, certain countries, among them some of our own great Dominions, have tied themselves down to a system of Income Tax upon shipping which ignores altogether the question of whether any profit has been made or not. In the great Commonwealth of Australia, for instance, to-day, although ships are being run there at a loss, yet 10 per cent. of all the gross outward freights is considered to be profit and Income Tax has to be paid on that amount.
This arbitrary form of assessment is becoming more and more common throughout the world and it is about to apply in India and, I believe, elsewhere. I think people are beginning to realise that this system is a potential cause of international friction. Not only because of the loss to this country, not only because of the international friction involved, but from the point of view of the British Treasury, there is a good deal to be said for this Amendment. Under the perfectly equitable provisions of the British Income Tax law, all these deductions from the earnings of ships made by way of taxation at different ports throughout the world, are counted part of the expense of carrying on the business, and the result is they have to be allowed for in the assessment of British Income Tax, as expenses incurred in carrying on the business. Under the present system, the result of the conces- 109 sion made by this Clause will not be a loss to the Treasury but an absolute gain. From every point of view the Clause should command support. It was thoroughly discussed last year and a number of speeches were made in support of it and the present Solicitor-General, next whom I had then the honour to be seated, made a most eloquent speech on the spur of the moment, having been convinced by the arguments of my hon. Friend the Member for Ilford (Mr. Wise). The matter has not escaped public attention since, and there have been not only resolutions by international conferences, but resolutions by the chambers of commerce in this country and by the Chamber of Shipping and other shipping organisations. Nor indeed should this Clause fail to find a large measure of support from the Labour Benches. I shall be very much surprised if the hon. Member for Central Edinburgh (Mr. W. Graham) voiced the opinions of his party, when he tried with that dexterity which he always displays to pour cold water upon the provision of this Clause. I hope we may have some announcement from the Labour benches in favour of a proposal which is not only a good business proposition, but is one which will immediately help our relations with America and in the long run prevent international friction.
§ 6.0 P.M.
§ Mr. SEXTON
It is not often I find myself in agreement with the Treasury Bench, but on this occasion I heartily agree with every word in the proposed Clause though I do so purely from what may be regarded as selfish motives. From the point of view of those whom I represent, anything which relieves the shipping industry or which lifts any burden from the shipping industry, gives us at least a better chance of seeking for improved conditions or better wages. It is not always the case that these burdens upon the industry really exist in substance and in fact, but any concession of this kind strengthens our hands and gives us a better argument when we go to the industry to ask for more, while it removes at least one of the arguments usually put up against us as to the calls upon the industry in other respects. The less the burden on the shipping industry the better the chance we have. In a 110 commercial sense, and I speak now in a commercial sense, Britain may be said to rule the waves, though there is very serious competition from the United States. But, taken as a whole, our ships cover all the seas and nearly every port in the civilised world. Therefore it is important to reduce the burden on our shipping as much as possible. The removal of barriers of any kind of an international character ought to commend itself to all of us. This Clause is a step in the right direction in the removal of international barriers.
§ Mr. WISE
This Clause was fully discussed in the Budget of last year, and I always thought that the Chancellor of the Exchequer of 1922 was sympathetic towards it. I think that the main thing which we have to consider, and possibly that is why it is introduced in Council, is that the offer might be withdrawn by the United States of America. If the offer was withdrawn by the United States of America it would be very serious for our shipping, which is one of our most important industries, without which we cannot live. I consider that with regard to double taxation this Clause requires support. I understood from the Financial Secretary to the Treasury that he was going to set up a Committee with regard to this double Income Tax.
§ Mr. WISE
Then I misunderstood him, but I would welcome a Committee if it was set up, because double Income Tax is one of the most difficult and complex problems which we have to consider in future; but we must realise that a burden of increased taxation in debtor countries is thrown upon the creditor country, and if one considers those problems and also if Members study the report issued recently by the Committee of the League of Nations on Double Taxation, I do think that the Financial Secretary to the Treasury will possibly consider setting up a Committee to go into this fully. I, anyhow, welcome this Clause which supports our shipping which is so necessary for this country.
§ Sir W. JOYNSON-HICKS
There are one or two points to which I might refer. In reply to the hon. Member for Central 111 Edinburgh (Mr. W. Graham), I would like to say that the report of the Colwyn Committee has not been published, and, therefore, he will forgive me if I do not enter into a discussion with him upon the remarks which he made concerning the report of that Committee. This is a purely permissive Clause. The question of double Income Tax is a matter of vital importance, and we want to remedy it wherever we can. As to setting up a Committee, it may be that a different Chancellor of the Exchequer may do so, but, as the hon. Member for Ilford (Mr. Wise) is aware, I can only deal with matters that come before me, and though I apologise for bringing this forward on the Report stage, yet I bring it forward as it is so urgent, having regard to the offer of the United States Government in 1921, which was made after the report of the Royal Commission, that we should lose no time in bringing this before the House with a view to giving the Government power at least to negotiate with the United States Government.
My hon. and learned Friend the Member for York (Sir J. Butcher) asked me how we were to allocate the amount of income which was to be attributed either to the United States portion or to the British portion. The answer is that that is done already. My right hon. and learned Friend the Member for Spen Valley (Sir J. Simon) is right in saying that the question of the site of the control of the shipping company is the vital one from the point of view of Income Tax. That we intend to preserve. There is no question of any alteration of the law as regards that. The calculation referred to by the hon. and learned Member for York is already made, though it may be difficult to make. The British shipping company is taxed in America, Holland, or anywhere else where the shipping company do business, on the estimated amount of profits earned in that country by the shipping of that particular British company, and these taxes are imposed by the American, Brazilian, or any other Government, and the company is entitled to deduct the amount of such taxation which it pays from the profits allocated for the purpose of Income Tax in this country. As the hon. Member for Ayr (Mr. A. Shaw) said, that is why the Treasury would gain some benefit, because, if the Income Tax on the por- 112 tion of the profits made in America is exempt from American taxation, the amount of that taxation can then be brought in to rank for Income Tax in this country. Therefore, though we should be letting off the profits of American ships in this country, we should gain corresponding benefit by not having to give an allowance for the Income Tax imposed in America on British shipping.
§ Mr. WALLHEAD
What happens in the case of a ship of a British company which changes its flag from this country to America to evade British taxation?
§ Sir W. JOYNSON-HICKS
It is entirely a question of where the control of the company exists. If the head centre of the company is British it is liable to British Income Tax. Then there is one other point of importance which was raised by the right hon. and learned Member for Spen Valley in regard to the terms of the new Clause relating to the meaning of "business of shipping." The definition which we have taken is taken entirely from the definition of "business of shipping" in the Finance Act, 1917, Section 22, Sub-section (23), relating to the Excess Profits Duty on the business of shipping. I think that it would be better to omit the last six words of the Clause, "to whom a ship is demised," so that the Clause would include any charterer of a ship. This point was also raised by the hon. Member for Cardiff (Mr. Gould). This alteration will make the Clause wider, and I think that it also makes it nearly in accordance with the provisions of the American Act which isthe income of a non-resident alien or foreign corporation which consists exclusively of earnings derived from the operation of the ship.The Clause is a permissive one, but it will allow us to get on without waiting for another year, and any arrangement made would be subject to the approval of this House. I have not had time to consult my legal advisers, but it is desirable to get some Clause passed in this Finance Bill, and this is the last occasion on which to do it. It is of great importance, not merely from the point of view of shipping, but from the point of view of having the idea of getting rid of double taxation put upon the Statute Book. I think that the right hon. and learned Gentleman the Member for Spen Valley would be satisfied 113 that it would take some months, at all events, to get a treaty made with the United States of America, and then it would have to come to this House for approval, and perhaps the right hon. and learned Gentleman will consult me as to the precise words, which, if necessary, could be altered at the earliest possible opportunity.
§ Question, "That the Clause be read a Second time," put, and agreed to.
§ Clause read a Second time.
§ Amendment made: In Sub-section (4), leave out the words "to whom a ship is demised."—[W. Joynson-Hicks.]
§ Clause, as amended, added to the Bill.