§ (1) Any company to which Section twenty-one of the Finance Act, 1922, applies, may at any time after the general meeting at which the accounts of the company made up for any year or other period are adopted, forward to the Special Commissioners for their consideration a copy of the said accounts, together with a copy of the report, if any, of the directors for that year or period, and such further information, if any, as it may think fit, and the Special Commissioners shall, subject to the provisions of this Section, on receiving the said accounts and other documents, if any, proceed to consider the position of the company in relation to the said Section twenty-one.
§ (2) The Special Commissioners may as soon as reasonably may be, but not later than twenty-eight days after the receipt of the said accounts and other documents, if any, call upon the company to furnish to them within twenty-eight days, or such extended period as they may subsequently allow, such further particulars as they may reasonably require.
§ Provided that if the particulars so required are not furnished to the Commissioners within the period or extended period allowed for the purpose they may proceed under this Section upon the information before them.
§ (3) Where a company has under Subsection (1) of this Section forwarded to the Special Commissioners the accounts of the company for any year or other period, whether with or without any other documents, the following provisions shall have effect:—
- (a) unless within three months after the receipt of the said accounts and other documents, or, if further particulars have been required as aforesaid, within three months after the receipt of those particulars, or the expiration of the period within which those particulars are to be furnished, as the case may be, the Special Commissioners intimate to the company their intention to take further action in the case of the company under the said Section twenty-one in respect of that year or other period, the power of the Commissioners to take any such further action in respect of that year or other period shall absolutely cease and determine; and
- (b) notwithstanding that the Special Commissioners have given such an intimation as aforesaid, they shall not after the expiration of six months from the-date of the intimation have power in relation to that company to issue a notice-under paragraph (4) of the First Schedule to the Finance Act, 1922, with respect to that year or period, or, unless such a notice has been issued before the expiration of the said period of six months, to give a direction in relation to the company under Sub-section (1) of Section
1281 twenty-one of the said Act.—[Sir F. Iliffe.]
§ Brought up, and read the First time.
§ Sir E. ILIFFEI beg to move, "That the Clause be read a Second time."
When the Finance Act of 1927 was being debated in this House, the Chancellor of the Exchequer pointed out that this particular section of the Finance Act would not become operative until this year, and he said that meantime he was prepared to consider any better methods which industry might devise to circumvent the Super-tax evader without disturbing the normal course of business. Three of the leading commercial associations in this country decided to take up this offer. They were the Association of British Chambers of Commerce, the Federation of British Industry, and the Shipowners Parliamentary Committee. They formed a joint committee to examine this problem, and they did me the honour of appointing me as Chairman of that Committee. They went into the matter very thoroughly indeed and came to the conclusion that there were three main objections to the present legislation all of which tended to encourage directors to over-distribute their profits at a time when it was essential if our export trade was to be extended and our unemployed to be absorbed that companies should be encouraged to leave as much of their profit as possible in industry.
Three main objections were raised. First of all, there was the uncertainty which must exist in the minds of the directors of honestly conducted companies as to the amount of profits it is legitimate to reserve each year for the future development of the business. The second objection was the insecurity due to the fact that at any time in the future the Inland Revenue Department may demand Super-tax on profits reserved five or six years back. Thirdly, the Super-tax, when levied, is payable upon the whole of the profits, and not merely on the portion deemed to be unreasonably withheld. The Committee devised a scheme which in their opinion covered these points, and which they felt would tend to restore the confidence now lacking. This scheme was submitted to the Chancellor of the. Exchequer, but I do not propose to trouble the Committee 1282 with the details of that scheme. The Chancellor of the Exchequer was unable to accept the scheme. He told us that we were under an entire misapprehension as to the object and effect of the Section to which we objected, and he stated that his intention was to deal only with the avoidance of Super-tax by transactions and arrangements which were outside the course of legitimate and ordinary business, and that the Clauses referred to bore no relation to the reserves made by any company in pursuance of a thrifty, far-sighted, straightforward business policy. The Chancellor of the Exchequer further made it clear that under his proposals no trader need have any misgivings whatever if he reserved the whole of his profits provided that they were really required for the maintenance and development of his business. At the same time, the Chancellor of the Exchequer said that he would be willing to consider some provision which would enable companies to clear their accounts year by year and so avoid any possibility of retrospective assessment to Super-tax.
After giving the matter careful consideration, the joint committee to which I have alluded, decided to accept the Chancellor of the Exchequer's assurance and that is the reason why I am confining myself to this one Amendment. I must say that I could have wished that the assurances given by the Chancellor of the Exchequer had been embodied in the Act itself. The present Chancellor of the Exchequer may not always occupy his present position, and some future Chancellor of the Exchequer might take a narrower view. If the Chancellor of the Exchequer accepts this Amendment, I shall be grateful to him, but my gratitude would have been very much greater if his assurances had been recoiled in the Act itself. If we find in the future that these Acts are not interpreted in accordance with the assurances given by the Chancellor of the Exchequer—I am sure that will not happen in the time of the present Chancellor of the Exchequer—we shall feel obliged to move Amendments to bring the Act more in accordance with the assurances which have been given by the right hon. Gentleman. This Amendment enables companies to know exactly how they stand from year to year, and it 1283 avoids the uncertainty of retrospective legislation.
§ Mr. CHURCHILLThe Committee will recollect the discussions which took place on the Finance Act last year. I have always said throughout the discussions on this subject that the new Clauses intended to check evasion would in no respect hamper the bona fide honest trader who wished to carry a proportion of his profits to reserve for the necessary development of his business. I am still of that opinion, but I must admit that a great deal of misunderstanding, misapprehension and anxiety has been caused not so much by the Clauses in the Finance Bill of last year, but by the discussion which has taken place in the meantime. At any rate, I am quite clear that although there has been a certain appreciable and even serious measure of anxiety on this question, the Clauses to which objection has been taken have not been any deterrent upon honest businesses carrying money to reserve in a proper proportion. After all, the accumulation of reserves is an eminently important factor in businesses. We have aimed at those who have sought to evade taxation and who have made a business of evasion. It is very important in dealing with this matter that we should not cause unnecessary despondency and alarm throughout the great business world of Britain where industries are doing none too well at the present time.
When this matter was before us last year I said I should be glad to receive alternative suggestions which would achieve the purpose in view, and, as a result of that, a Committee was formed which made a great many investigations, and in the end made certain proposals. I was not able to accept the bulk of the proposals, but as the result of these discussions I thought it would be only right to accept one of the provisions. The object of this one provision is simply to limit the uncertainty, and it in no way affects the validity or effectiveness of the Clause of last year, but it does relieve the uncertainty. It sets a time limit to the date beyond which the past history of any firm cannot be called into question. What is the provision? It is that it shall be open to a company to submit its accounts to the Special Commissioners soon after the end of its trading 1284 year and the declaration of its dividend, if any. The Special Commissioners will then have a limited time only in which to proceed under the Section. A company tenders its accounts for examination, and the Commissioners say whether they take any exception to the procedure of the company or not. If they do not take any steps within that time, then for that year, and for that year only, the matter lapses. The accounts are submitted, and the company says: "This is what we are doing. Have you any grounds for taking exception?" If no exception is taken, that year passes out and cannot again be overhauled.
Of course, if the Commissioners on examining the accounts find that there is ground for believing that sums are unreasonably being carried to reserve, and not for building up the business or for the legitimate purposes, but for the purpose of evading the tax, then they can proceed as stated by what attracted wide attention last year as Clauses 29 and 30. In any case, the rights of the company are preserved in respect of appeal and examination by an impartial body—the board of referees. In this way the risk of the company being faced with Super-tax charges for several past years will be avoided if the company likes to take the precaution of making a statement of its accounts, the element of uncertainty that overhangs the business world is removed without any detriment to the interests of the revenue. I, therefore, propose to accept the new Clause in the form in which it has been moved by my hon. Friend as a result of long and careful discussion with the Revenue officials.
§ Mr. W. GRAHAMI rise only to ask the Chancellor of the Exchequer one question. This Clause is based on a great deal of discussion in the House last year, and also at the time of the earlier legislation. As I understand the proposal, it amounts to a kind of agreeable arrangement between the companies and the Special Commissioners. The Clause clearly lays down the dates within which the accounts are to be lodged and inquiries made. The question I should like to ask the Chancellor is this. As we are here dealing with the problem of evasion, let us assume that there are cases in which later on, outside these dates, information comes to hand or is available as to an inadequate distribu- 1285 tion. Does this Clause mean that you will have abandoned all your rights, on the emergence of information of this kind, to make an inquiry and to take the steps which are contemplated in the legislation of 1921 as amended by the Section of the Act of 1927? If so, the House of Commons should clearly understand that it is seriously undermining in this Clause the power to review for the purpose of preventing evasion. I should have thought this is hardly any part of the purpose of the Chancellor of the Exchequer, as indeed it would be inconsistent with what the Royal Commission on Income Tax did find in 1919.
§ Mr. CHURCHILLI cannot think it possible that this Clause, which was drafted after so much consultation, could have reference to anything but a bona fide statement of procedure and bona fide transactions. Of course, if false statements were presented which were not in accordance with the real facts, obviously the saving grace of this Clause would not apply. That is the impression which I strongly have, and I will make sure that this is the intention of the Clause. I could not possibly pronounce on a matter of law at a moment's notice, but it is the intention of the promoters that nothing which is not bona fide should in any way be safeguarded by the Clause.
§ Mr. GRAHAMMay I ask whether, in order to be sure on that point, the Chancellor will between now and the Report stage inquire as to whether the effect of these words would, so to speak, be an absolvitur of the companies or the abandonment of all further steps on the appearance of fresh information which may not represent fraud or be misrepresentation or the withholding of information, in the sense in which the Chancellor speaks—it may be the appearance of fresh details which were not before the Commissioners at the time its decision was reached?
§ Mr. CHURCHILLWe need not go into details. Of course, I am quite clear that only bona fide disclosures of the trading results of a given year ought to secure the advantages which are afforded by this Clause. If there is a bona fide disclosure of the trading accounts and they say, "This is what we are doing and what we are carrying to reserve; have you any comment to make of an adverse kind on it?" If this 1286 is done in a bona fide manner, the company will be effectively protected.
§ Clause read a Second time, and added to the Bill.