HC Deb 05 June 1930 vol 239 cc2523-36

On a point of Order. Before any Amendment is brought forward upon this Clause, it might simplify our proceedings if the Government would give us a simple explanation, in ordinary parlance of the purpose, scope and intention of the Clause, and that our dscussion should then proceed upon the basis of knowledge of exactly what the Government have in mind, and the points to which they attach importance. We can see whether the points which cause us difficulty can be adjusted rapidly to their point of view.


The trouble that has arisen is as follows. If a non-resident derives profit from trade carried on within the country through an agent, the non-resident is taxable. Prior to 1915, it was a condition of his taxability that the agent should be actually in receipt of the profits. Now that does not apply, and if you find a non-resident trading here through au agent, that makes the non-resident liable to tax. It might seem very simple to determine whether or not a non-resident is carrying on business here, but in truth and in fact a great deal of legal ingenuity has been expended in answering that question which at the first flush seems comparatively simple. Broadly speaking, any question as to whether a trade is exercised here or not in this sort of case boils down to this: "Aye" or "No," do you find that the contracts that are alleged to constitute trade are signed here? Some years ago a matter that was frequently litigated in the courts as to the liability of a non-resident who is alleged to trade through an agent was whether the contracts were signed in this country. Once that became known, a non-resident who wanted to escape tax took the simple precaution of not having his contracts made in this country, and consequently, from the point of view of the Revenue, the whole thing has really come practically to nothing. We get singularly little except that we seem to earn a very considerable amount of bad will, because foreign countries point to us as taxing non-residents, and use the fact as a ground for taxing British subjects in their own country and singling them out for specially harsh treatment in the way of taxation.

11.0 p.m.

There is an old controversy between the Continental point of view and ours as to where the profit arises. The position has led to this; that a very representative body of traders in this country, such, for instance, as the Federation of British Industries, The British National Committee of International Chambers of Commerce and the Manufacturers' Agents' Association have made representations to the effect that this unsatisfactory state of things should be stopped. They have pointed out that they are penalised abroad by reason of the existing state of affairs and they have asked whether it is not possible to endeavour to enter into some kind of reciprocal arrangement with foreign countries. The Committee will remember that that has been done already in the case of shipping contracts, to give an illustration of the possibilities of reciprocal arrangements. Therefore, in response to the right hon. Gentleman the Member for Epping (Mr. Churchill), I would say that our object in this Clause is to make it possible for us to enter into reciprocal arrangements in this sort of cases. We do not propose under this Clause to take power to exempt from taxation non-residents who have, for instance, a regular branch over here. It is obvious that it would be unfair that they should escape taxation while our people over here have to pay it. Equally, if you get a non-resident who is definitely selling stock here, we do not propose to exempt him or her from the obligation of paying tax. Also in the case of the manufacturer who has a definite regular agent over here carrying on business, we do not propose to exempt him from liability to Income Tax. What we propose to do in the rather shadowy and vague sort of case is to take power to sweep them away. I hope that with that explanation the Committee will allow us to have the Clause.


I beg to move, in page 14, line 3, to leave out the words "from the sale of goods."

I have nothing but respectful commendation for all the Attorney-General has said and for the object of this Clause, but there are one or two points of detail which, I think, may properly be the subject of Amendment on the Report stage as the result of further consideration which has not yet been given to this Clause by, for instance, the London Chamber of Commerce. In moving this Amendment, I hope that I may only be asking for something which will be agreed to. This Clause proposes to enable reciprocal arrangements to be made between countries for dealing with these foreign agents. The foreign agents for the sale of goods are, I think, a comparatively small number of the foreign agents who are concerned. The Attorney-General referred to shipping contracts, but there is a number of other contracts of one kind and another in addition to those connected to the sale of goods. I cannot suppose that there is any particular reason why they should not be included.

I hope, therefore, the Committee will agree to leave out these particular words so that the Clause may apply to dealing with profits or gains arising directly or indirectly to a person resident in any foreign State or in the Dominions outside this kingdom, through an agency in the United Kingdom, whether that agency is one dealing strictly with the sales and the purchases of goods, or whether it is an agency dealing with many other matters of commerce—matters of finance and contracts of different kinds. I am so persuaded that this Amendment is entirely in accordance with the ideas of the Government and the promoters of this Clause, that I do not propose to labour the matter any further. I hope that the Amendment will be accepted or that we shall be told what are the objections.


As far as I understand the purpose of this Amendment, it is to extend the conditions under which an agent will be liable for tax in this country. This Clause has been drafted in consultation with, and as a result of, representations by the commercial interests and certain foreign countries, and the main purpose of the Clause is to try to bring about a reciprocal arrangement between this country and foreign countries and the Dominions. Therefore, I think the Committee will realise that there has been something of an understanding that reciprocal arrangements should be negotiated, and it would be very difficult to accept an Amendment which would change that understanding and make it impossible for us to come to some agreement. I gather that it is rather doubtful whether the commercial interests of this country, who have approved the proposal as it has been submitted, would be willing to agree to the extension which the Amendment would make. I will do as I have promised to do in regard to other Amendments, but I doubt very much whether, even if it were considered to be desirable, it would be possible to do anything this year. We will, however, bear it in mind and if, after consultation with the parties with whom we have had consultation, it is considered that it might be desirable to extend it in the direction indicated, it might be considered in next year's Finance Bill.


In drafting this Clause, has the right hon. Gentleman consulted the representatives of the professional classes and professional organisations? "The sale of goods" limits the Clause to the trading classes and excludes the professional classes. There are professional classes who have agencies not only in this country, but also abroad. If the right hon. Gentleman is making reciprocal arrangements, why not cover them?


It did not occur to me to consider the cases that the right hon. Gentleman has in mind. I suppose he refers to accountants and the like. Such professional businesses would not be agencies but branches and would be taxed as resident concerns.


I do not rise to take part in the discussion but to ask, on a question of procedure, whether it would not be for the convenience of the Committee to allow the discussion on this Amendment to be general? Several hon. Members desire to speak on the Clause as a whole, and it would be desirable if you allowed the usual latitude.


If the Amendment were withdrawn and other Amendments not moved, we could at once pass to the discussion of the Clause on the Motion that it should stand part of the Bill.


I am not sure about that, as some of the hon. Members belonging to the Liberal party might have something to say.


I think the suggestion of the right hon. Gentleman is one which we might accept.


I wish to second the Amendment. We are grateful for the explanation given by the Attorney-General and the Chancellor of the Exchequer of the purport and meaning of this Clause, and as a true Liberal I am enormously influenced by the fact that it has something to do with an international conference. I am not quite sure that the Chancellor of the Exchequer is correct when he suggests that the Amendment has the effect of extending the liability of an agent to tax. It has exactly the contrary effect. The idea of the Amendment is to render the whole of the agencies capable of sharing in the benefit which the Clause is intended to grant, rather than limiting it to the case of those who engage in the sale of goods. I have had occasion to address observations to the Committee before upon one other aspect of the taxing of agents of foreign principals in this country. The Attorney-General said that we accumulated bad will through this process, but we also do this—we put the English agent out of his job.

In Luton there is a large number of agents of foreign houses who, immediately the tax collector brings any paper to them, lose their job, and the foreign agent buys direct, so that we accumulate bad will and also put our own people out of employment. That is a serious matter. Here is a suggestion that where, under certain circumstances, there is double taxation, a menace to our trading enterprises with which we have to contend in many forms, there should be certain measures of relief, but we are surprised to find that this Clause is limited to agencies for the sale of goods.

A very large number of agencies are exactly the reverse and are for the purchase of goods, and a very large number of houses in certain parts of our city are concerned as regular buying agents. I understood the Attorney-General to say that this Clause was not intended to cover the case of anybody who had a regular business here, a part of which business was in fact an agency. I should be prepared to subscribe to that and allow such a business to be continued to taxation in the ordinary way, but I should have thought that agencies which dealt with the purchase of goods, with insurance matters, with various banking and broking matters such as are constantly found in this country from the Scandinavian and Netherland countries, were clearly within the ambit of what this international conference was intended to arrive at.

We submit that this Clause is an excellent beginning. Any attempt to deal with the difficulty of double taxation is worthy of the greatest support in this Committee. It is one of the contributory causes of unemployment and lack of initiative. I support the whole of this Clause, but I ask that its ambit should not be limited to those who derive their profits from the sale of goods but should be extended to other cases. The law is that the foreign principal is responsible through his agent as there is sale for the consigned stock or the agent is capable of signing a contract in this country. A large volume of business relates to sale of goods, but it does not cover the whole story and it is because the Clause is unnecessarily limited that the Amendment is moved. We desire to raise the point. I have no doubt that the hon. Member who has moved the Amendment will be prepared to accept an assurance that the Government will carefully look into the matter between now and Report. I have had a large number of communications on this matter; it is not an academic point raised by me. It is felt by the trade concerned. This Clause is an excellent beginning but it is unduly restricted to an agency for the purchase of goods whereas it should include the sale of goods as well.

Lieut.-Colonel Sir A. LAMBERT WARD

I congratulate the Chancellor on having made this beginning, but it is only a beginning. It does not go far enough. The idea that you can tax foreigners as long as they are in this country is old fashioned and should have been exploded long ago. In reply to an interrupt ion of mine the Attorney-General said that we make people who have business in this country liable to Income-tax, and when I asked how it was got, the hon. and learned Member replied "through the agents". How much was got he did not say and it seems to me that in attempting to get at the principal through the agent we are doing a vast amount of harm, in an unnecessarily unprofitable way because the amount we get is so small as to be hardly worth while disturbing our friendly commercial relations with foreign countries. The Attorney-General did not say to what extent we attempted to make the agent responsible. Is it on imaginary profits or on the real profits which are supposed to be realised on goods sold in this country, or on the profits of the principal?

Let me give a specific case. A man wishes to buy a motor car and he goes to any agent in London or elsewhere. He wants a Studebaker, and unless the car is in stock he has to wait until a car is brought from the manufacturers in America. If there is a stock of the cars the agent is liable not only for the profit which he himself makes upon the sale of that car but also for the supposed profits which the manufacturers themselves have made through the sale of it. In that case is the agent liable for the profits made on that particular car only or is he liable for Income Tax on the entire profits which the Studebaker Corporation may make? The other day I went into an ironmonger's shop to buy a shifting spanner. When I looked at the name on it I saw that it was made by the Hartford Tool Co. of Connecticut. It was sold out of stock, and came out of a cardboard box which contained about a dozen spanners. Is that ironmonger liable for the entire profits made by the Hartford Tool Co. of Connecticut or liable only for the amount of profit that the company made on that particular box of spanners? What chance has the Treasury of getting that profit?

Go into a greengrocer's shop and buy a pound of cherries imported from France. Is the greengrocer liable for the profits of the French grower of the cherries? If he is, he is either not going to pay it at all or the Treasury are going to drive him into the bankruptcy court. In either case it is not worth while. All that we are doing, in attempting to obtain Income Tax from nonresidents in this country through their agents, is creating ill-feeling and doing harm to our Continental and foreign trade, which at this moment we cannot really afford to do.

There is another Amendment on the Paper in my name to leave out the paragraph which deals with profits which accrue to a person not resident in the United Kingdom directly or indirectly from the sale of goods effected in the United Kingdom through any branch or management in the United Kingdom or through any agency in the United Kingdom where the agent has and habitually exercises a general authority to negotiate and conclude contracts. In that case it seems to me that if the agent does not sign definitely as a partner with the concern, but signs as an agent for the manufacturer or the merchant abroad, he ought not to be liable for the tax. If he is liable the question again arises, how are you going to collect the tax? You are either going to drive men out of business or into the bankruptcy court; or else you shut your eyes to the fact that a man is tacitly ignoring the law. Again, take the case of the agents of merchants in the Argentine. Up to a few years ago they have habitually signed charters with English shipowners. To what extent are they liable, not only on the charter but also with regard to the profits which their principals may make in South America? Whatever the law may say you cannot get the money, for if you attempt to do so you merely drive the agents out of business or into the bankruptcy court. These attempts to get income tax out of non-resident merchants and traders are not workable.


I suggest that at this stage the Chancellor of the Exchequer should tell us that he will make an effort to deal with the words "the sale of goods," around which this discussion has played. The words clearly require further definition, both in the direction of amplification and precision. The hon. Member for Luton (Mr. Burgin), who spoke so ably from the Liberal benches, has shown why "the purchase of goods" should be included. I suggest that the Chancellor of the Exchequer or the learned Attorney-General should tell us that this point will be studied by the experts of the Treasury between now and Report, with a view to making the Clause the vehicle of the purposes of the Government.


The Chancellor of the Exchequer authorises me to say, and I say so without hesitation, that as this is a matter of extreme complexity on which we are entitled to expect the help of the Committee, everything which the Committee has said will certainly be considered. At the same time I must point out that, plainly, profits are not made here by the purchase of goods, and in the case of an agent who is here purchasing only, there is no question of tax at all. The only tax is the remuneration which the agent gets. Profit does not come from purchasing but from selling. We shall consider all the points which have been raised, but I am afraid that it will be a long time before I am convinced that profit comes from purchasing.


In view of what the Chancellor of the Exchequer and the Attorney-General have said I am inclined, with the leave of the Committee, to withdraw the Amendment, but as the discussion has covered the whole Clause I may be permitted a few words before doing so. As to this Amendment am quite satisfied that the point can be dealt with on the Report Stage, but in regard to the remainder of the Clause there are, or may be, very difficult points of law requiring serious consideration particularly in relation to the proviso at the end of Sub-section (1). I do not think that those words can be as usefully discussed at this time of night, when we are all perhaps rather impatient to go home, as at a later stage. I say so with all the more reason because I have had an intimation from certain very important bodies in the City of London, that they have not had time to consider this Clause and that they feel somewhat uneasy as to how it may affect legislation passed some time ago in regard to foreign agents which may be made to the Chancellor in order to avoid complicating the law in relation to agents will receive attention, equally with the point raised in the Amendment. In the circumstances, I beg leave to withdraw the Amendment.




I wish to make it plain that there is one Gentleman at any rate on this side of the Committee who has not joined in the general chorus of approval. I think that the Committee ought to realise before passing this Clause, that an entirely new departure is being made in connection with the Income Tax laws of this country. We have had an Income Tax for about 130 years, but never until now has it been found necessary to give relief to foreigners who trade in this country. I think we were all re-assured by the observations of the learned Attorney-General when he said that relief was only to be given to traders who effected contracts outside this country, and was not going to apply to regular agencies. That reassured us a great deal. Then a speech came from my hon. Friend, the Member for Luton (Dr. Burgin) and another hon. Friend on these benches, and we were far from being reassured. We see the beginning of a dangerous wedge into our trading community. Every trader in the country may well be affected by these Orders in Council. If any relief is to be given, it should be the business of Parliament and not the business of an Order-in-Council, which may or may not be put right later by Parliament. In Sub-section (2) Parliament may revoke any order, but without prejudice to the validity of anything previously done thereunder. It can only be intended to give relief to foreigners who trade in this country in competition with our own people. Take the case of America. We are assured that some reciprocal arrangements will be given, but have we got the best of America in the past? In the debt settlements, it is always Great Britain which has had to pay, and it will be unlikely that Great Britain will be able to get any reciprocal arrangements. In this country we have the finest system of jurisprudence in the world, and a foreigner can appeal again and again to our courts and get justice. We know that American courts are not as effective as ours, and would not be prejudiced in favour of British trade. The system can never be reciprocal, because the desire of America to capture our markets is far greater and out of all proportion to the desire of British traders to compete with American markets. It is said that the effect of this will be to bring American capital into this country which will employ British people; it will mean that we shall have many more American masters. We shall have, too, Russian masters, because this Clause is designed so that we can come to some arrangements with that strange republic in the north. Hon. Members have said that Russian trade was going to cause unemployment, and presumably they are going to put this into effect in some way. It would be childish to expect any protection from the courts of Russia to British traders in reciprocation for the advantage which they may get here. I wish to register my protest against this entirely new departure in the Income Tax legislation. It will defend the foreigners in competition with our own people.


I am sorry to have to disagree with the hon. Member for Eastbourne (Mr. Marjoribanks) but I do not think he knows what has been going on for some years past. The trading community have been working for some time to get this business on a right basis. Already there are reciprocal arrangements about shipping; and, in that spirit of reciprocity, we have gradually been getting on to a basis which is as satisfactory as it can be under the circumstances. I do not suggest that this Clause covers all the points to be dealt with, and many members of the British trading community will be glad to learn that the Chancellor has agreed to consider this matter in order to see whether he can do more on the lines we have asked for. The hon. Member for Luton (Dr. Burgin) has, in the main, expressed what is in the minds of many of us. I was anxious that the House should not be under the impression that the state of affairs was quite as the hon. Member for Eastbourne described it, although I am not disputing all that he said. The Clause is satisfactory up to a point, but we want to see it developed and while we do not feel that we have got all we want in the interests of the country we do appreciate it as a step in advance and hope the Chancellor will see his way to put matters on a still better foundation.


Not for the first time in the course of these Debates I find myself in disagreement with my hon. Friend the Member for Eastbourne (Mr. Marjoribanks) on a question regarding the practical applications of the provisions of the various Finance Acts and of the Bill before us to-day to the humdrum business affairs of every day life. This Clause has been long needed in our financial legislation. I think the Attorney-General will confirm me in the statement that my hon. Friend was quite wrong in suggesting that a fundamentally new principle of law is introduced by the Clause. As a matter of fact it is merely a restoration of the law as it was until a, very few years ago—I think about the year 1913. Then, for the first time in the income tax law of this country, foreign principals were liable to be charged to income tax in the name of resident agents, factors and the rest. As I understand it, this Clause is the result of international discussions which have been going on over a long period of years and have only been brought to fruition by the intervention of some of those bodies to which the Chancellor of the Exchequer or the Attorney-General referred a few moments ago. These provisions have attracted the support of a number of foreign governments who are vitally concerned to see that trade between this country and their countries should be extended and improved.

I do not know whether those who are opposing this Clause realise what happens when a foreign manufacturer or merchant wishes to start business in this country. The first thing he does is to go to his accountant or solicitor and ask "What is my liability to income tax going to be, and how can I so arrange things as not to incur that liability?" The result has been that very little tax has been collected under these provisions, but that a great deal of friction has been engendered and a good many businesses which might have been opened here have never been started. Instead, the foreign manufacturer or merchant has sent a traveller or has done that business by correspondence. Instead, therefore, of these provisions operating to take work away from those carrying on business in this country, the first effect of them will be to increase the number of those who are employed as agents or in the employ of agents. I am not quite sure whether I correctly understood the Chancellor of the Exchequer to say that the object of this Clause was to extend the liability to taxation. If that is so, I think he was mistaken. I see that the right hon. Gentleman agrees that that is not so, and that the purpose and effect of the Clause is to limit the area of taxation. I am much obliged to him, and will not pursue the matter further.

Amendment negatived.

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to.—[Mr. P. Snowden.]

Committee report Progress; to sit again upon Tuesday, 17th June.