HC Deb 01 June 1933 vol 278 cc2196-201

If the Commissioners of Inland Revenue have been satisfied, in connection with a scheme for the reconstruction of any company or companies, or the amalgamation of any companies that the conditions of Section fifty-five of the Finance Act, 1927, as amended by Section thirty-one of the Finance Act, 1928, have been complied with the company referred to in such Sections as "the transferee company" shall, notwithstanding the provisions of Sub-section (2) of Section thirty-two of the Finance Act, 1926, be entitled on giving notice in writing to the surveyor within twelve months after the end of the year of assessment in which such reconstruction or amalgamation toot place to such reliefs in respect of losses carried forward and to such allowances for deductions of wear and tear of machinery and plant to which, but for the reconstruction or amalgamation, the company, referred to as "the existing company" in Section fifty-five of the Finance Act, 1927, amended as aforesaid, would otherwise have been entitled.—[Mr. Peat.]

Brought up, and read the First time.

10.25 p.m.

Mr. PEAT

I beg to move, "That the Clause be read a Second time."

This proposal raises a point of principle as well as of justice. We are to-day living in. an era of reconstruction. Business men are being pressed to reconstruct wherever possible and the process of reconstruction has been encouraged by various Acts of Parliament right up to the Companies Act of 1929. Unfortunately, in 1926 an Act was passed which restricted to a certain extent the facilities which a company gets on reconstruction. The reason why we are moving this new Clause is this. At the present moment, if a company wants to reconstruct itself, and to transfer its undertaking to another company, it loses the opportunity of carrying forward losses which may be due to it under the Inland Revenue Acts. What we are asking for is the principle involved in Section 55 of the Finance Act of 1927, which allowed a company which reconstructed itself to be absolved from the payment of Stamp Duty on the new Capttal issued. The conditions under which this relief can be given are as follows: (1) that either the undertaking of one company, called the existing company, shall be acquired by another company, or not less than 90 per cent. of its share Capttal should be acquired by the new company, called the transferee company, and; (2) that the consideration for the acquisition by the transferee company of the undertaking or shares in the existing company shall consist, as to not less than 90 per cent. thereof of shares in the transferee company to the shareholders in the existing company. Those are the, conditions under which a company was allowed absolution from Stamp Duty on a new Capttal issue. Let me call attention to the report of the Company Law Amendment Committee, which says: The existing law as to Stamp Duties imposes a heavy burden in cases of reconstruction. We are not sure whether our recommendations on this subject fall strictly within the scope of our reference, but we may point out that, in our opinion, at any rate where the shareholders in the old and the new company are substantially the same, there can be no justification for charging ad valorem duty on so much of the Capttal of the new company as represents Capttal of the old company on which duty has already been paid. The effect is in substance a double taxation, which places a heavy and, in our opinion, an unjustifiable burden on industry and seriously interferes with the beneficial process of reconstruction. With regard to ad valorem duty on the new transfer of the old company's property to the new company, we think that there should be a statutory provision that this duty should not be exacted where the shareholders are substantially the same. We make our request to the Chancellor of the Exchequer for a reconsideration of the provision that where a company reconstructs and hands over its business to a new company in which the identity of the shareholders is the same, the company so reconstructed should be allowed to carry forward wear and tear allowance which has not been charged in the profit and loss account, and losses. In present circumstances many companies who are anxious to take advantage of the great and beneficial results of reconstruction are prohibited from doing so by reason of the fact that they may not be in a position to carry forward losses which are strictly due to them, under the present arrangement of taxation in this country.

I feel that we can say to the Chancellor of the Exchequer in answer to the criticism that he may make—that the shareholders of the reconstructed company to-day may change their identity to-morrow—that shareholders in companies that reconstruct are looking forward to improvement in their conditions, and that they are not the people who want to change their identity as soon as reconstruction takes place; they are bona fide proprietors of companies who will try to take advantage of a process of law which enables them to reconstruct themselves and to enter upon a new lease of life. If there was any difficulty on the point the supporters of this new Clause would be prepared to accept from the Chancellor of the Exchequer some restriction of the period during which a change of shareholding could take place.

The principle of this new Clause has already been accepted in so far as the Finance Act of 1926 is concerned. That Act laid down that where a partnership or sole trader transferred business to a company the losses could be carried forward by the company which was formed to take over the business. If you are to say to a man, who is in partnership, "If you transfer your business to a limited company you will be allowed to carry forward your losses," you should be able to say the same to a company which is transferring its business to a fresh company. In both cases the same principle should apply. I am speaking briefly, and I am not able to give the full explanation that I would have liked to have given of the proposal, and I will only add that I think this new Clause is merely common justice. Where reconstruction is demanded, either by commercial circumstances or, as is very often the case, by the Inland Revenue themselves who are trying to get arrears of taxation and are threatening proceedings and recommend reconstruction—in cases where reconstruction is in fact carried out, and where the identity of the shareholder or proprietor remains the same, the reconstructed company should be in a position to take advantage of the lasses of the company which existed in the first place.

10.35.p.m.

Sir A. STEELE AITLAND

I support the new Clause. The hon. Member for Darlington (Mr. Peat) has stated the case for it briefly, but so clearly and admirably that there can be no doubt as to the advantages of the course which he suggests. I am not going to repeat what he said, further than to point out that this would be another step in helping forward the policy of enabling industry to modernise itself and attain the utmost efficiency. I did not think the proposal would cost the Chancellor of the Exchequer much, and, if he could carry it out, now, it would be an encouragement to industry. On the other hand, if he cannot do it now, I hope he will take it into account and that by the time it is possible to do some of these things, there will be ready to the hand of a future Chancellor of the Exchequer a charter which will in all these respects give greater freedom from the burdens which at present rest on industry.

10.36.p.m.

Mr. CHAMBERLAIN

This is a rather technical matter and unless hon. Members have followed it very closely it may be difficult for them to grasp exactly what is proposed. In the first place, let me say that I cannot accept the proposal. I am afraid it would cost the Revenue a good deal of money, but it is not on that account that I must ask the Committee not to accept it. It is on the ground that the proposal itself seems to be wrong in principle, and I will try to explain what I mean. The proposal is that where a reconstruction or amalgamation of companies takes place under certain conditions the amalgamated or reconstructed company shall have the option to carry into its own business certain set-offs to which the old company would have been entitled if it had continued in existence. These are set-offs in respect of losses, wear and tear allowances and so forth. The Committee will see that this is an option given to the new company which, of course, it will only exercise in its own favour.

My hon. Friend said that the new company would be the same as the old because under the conditions the shareholders would be the same to the extent of 90 per cent., but that is not quite the effect of the conditions of which he speaks, because the main condition on which he relies is, not that the shareholders shall be 90 per cent. identical, but that the consideration of the transfer shall, to the extent of not less than 90 per cent. be the issue of shares in the transferee company to the other company. That is a very different thing. Suppose, for example, that a very large concern, a great combine, buys up a small company which has practically only what is called a "nuisance value" in that it is hampering to some extent the business of the larger concern. The condition is that 90 per cent. of the price which the large company pays for the small one shall be shares in the large company. That does not mean that 90 per cent. of the shareholders of the large concern are the same as the shareholders of the small company. My hon. Friend will see that it is not the same thing.

What is the principle which this proposal disregards? It is a principle with which hon. Members opposite are now familiar, namely, that a company has a legal entity. That legal entity is, of course, of considerable value to the company. For example, take the case of set-offs. Suppose a company has made a loss in a certain year, we know that that loss can be carried forward, and in the course of six succeeding years may be set against profits. It does not follow that the shareholders are always the same. The shareholders may change; they may even change completely during those six years, but, because the company has a separate legal entity, the company is able to get the benefit of its set-off. That entity is to be disregarded under this proposal, and the one-sided arrangement is to be made that a company which is to be assessed upon its profits as a new entity is to disregard the new entity when it comes to exercising this option which may be favourable to itself. That seems to me to be a principle which we cannot accept. I would point out one further objection. If the company which is going to be bought out is able to bring with it the option to take over these setoffs or losses, that option will be used as an addition to the price to be paid for the company. In that case the benefit of the proposal is not going to improve the industry, but merely going into the pockets of one particular section of share- holders who have already perhaps only a "nuisance value."

Mr. PEAT

I should like to withdraw this Clause, because I feel that the Chancellor of the Exchequer will probably give me an opportunity of discussing the matter with him later.

Motion and Clause, by leave, withdrawn.