§ 11.5 p.m.
Major HillsI beg to move, in page 78, line 33, at the end, to insert:
5. In computing the profits or losses of a local authority from any trade or business carried on by that authority a deduction shall be made equal to the amount which is required to be defrayed by them in repayment of debt by way of sinking fund payments, instalments or otherwise.This is a very important Amendment for the local authorities, who are allowed wear and tear which does not cover the payments which they have to make either by sinking fund or in repayment of loan charges. When local authorities borrow money for local purposes, they are put on terms of repayment of principal and interest by a sinking fund. I suggest to the
§ Chancellor that he might very well make this concession.
§ 11.8 p.m.
§ Major MilnerI beg to second the Amendment.
A local authority is under the statutory obligation to make payments to sinking fund, and it would be very difficult to satisfy the ratepayers that contributions to sinking fund were profits in the ordinary sense of the term. For those reasons, and others adduced by the right hon. Gentleman, the Chancellor of the Exchequer might think it right to make this concession. A similar concession was made in Excess Profits Duty when it was first brought in and also, on the same grounds, in the original National Defence Contribution.
§ 11.9 p.m.
§ Lieut.-Colonel ColvilleI should have had great pleasure in accepting the Amendment, and I must give my right hon. Friend a word of explanation for rejecting it. Repayment of loans is clearly a capital expenditure, and it is immaterial whether the profits earned in the trade or business carried on by a local authority are applied in such a repayment or in relief of rates. Deductions of this nature would involve similar claims by non-public undertakings on a very large scale. It is for that reason that we cannot accept the Amendment of the right hon. Gentleman. So many important branches of activity carried on by local authorities have been exempted from the charge that I do not think it can be seriously contended by the ratepayers that the remaining activities will be heavily affected by the National Defence Contribution. However that may be, for the reason which I have stated, and which I think must commend itself to the House, I cannot accept the Amendment.
Question put, "That those words he there inserted in the Bill."
§ The House divided: Ayes, 95; Noes, 202.
1645| Division No. 294.] | AYES. | [11.11 p.m. |
| Adamson, W. M. | Benn, Rt. Hon. W. W. | Cluse, W. S. |
| Alexander, Rt. Hon. A. V. (H'Isbr.) | Bromfield, W. | Cooks, F. S. |
| Ammon, C. G. | Brown, C. (Mansfield) | Cove, W. G. |
| Anderson, F. (Whitehaven) | Brown, Rt. Hon. J. (S. Ayrshire) | Dalton, H. |
| Attlee, Rt. Hon. C. R. | Buchanan, G. | Davidson, J. J. (Maryhill) |
| Banfield, J. W. | Burke, W. A. | Davies, S. O. (Merthyr) |
| Barnes, A. J. | Charleton, H. C. | Debbie, W. |
| Barr, J. | Chater, D. | Dunn, E. (Rother Valley) |
| Ede, J. C. | Leonard, W. | Robinson, W. A. (St. Helens) |
| Fletcher, Lt.-Comdr. R. T. H. | Leslie, J. R. | Rowson, G. |
| Gibson, R. (Greenock) | Logan, D. G. | Soely, Sir H. M. |
| Green, W. H. (Deptford) | Lunn, W. | Simpson, F. B. |
| Greenwood, Rt. Hon. A. | McEntee, V. La T. | Smith, Ben (Rotherhithe) |
| Grenfell, D. R. | McGhee, H. G. | Smith, E. (Stoke) |
| Griffith, F. Kingsley (M'ddl'sbro, W.) | Maclean, N. | Smith, T. (Normanton) |
| Griffiths, J. (Llanelly) | MacMillan, M. (Western Isles) | Sorensen, R. W. |
| Hall, G. H. (Aberdare) | Mainwaring, W. H. | Stephen, C. |
| Hall, J. H. (Whitechapel) | Marshall, F. | Stewart, W. J. (H'ght'n-le-Sp'ng) |
| Harris, Sir P. A. | Maxton, J. | Strauss, G. R. (Lambeth, N.) |
| Harvey, T. E. (Eng. Univ's.) | Milner, Major J. | Taylor, R. J. (Morpeth) |
| Hayday, A. | Morrison, Rt. Hon. H. (Hackney, S.) | Tinker, J. J. |
| Henderson, J. (Ardwick) | Morrison, R. C. (Tottenham, N.) | Watkins, F. C. |
| Henderson, T. (Tradeston) | Muff, G. | Westwood, J. |
| Hills, A. (Pontefract) | Nathan, Colonel H. L. | White, H. Graham |
| Hills, Major Rt. Hon. J. W. (Ripon) | Noel-Baker, P. J. | Wilkinson, Ellen |
| Holdsworth, H. | Paling, W. | Williams, T. (Don Valley) |
| Hopkin, D. | Parker, J. | Windsor, W. (Hull, C.) |
| Jagger, J. | Parkinson, J. A. | Woods, G. S. (Finsbury) |
| Jenkins, A. (Pontypool) | Pethick-Lawrence, Rt. Hon. F. W. | Young, Sir F. (Newton) |
| Kelly, W. T. | Pritt, D. N. | |
| Kirby, B. V. | Ridley, G. | TELLERS FOR THE AYES.— |
| Lathan, G. | Ritson, J. | Mr. Whiteley and Mr. John. |
| Lawson, J. J. | Roberts, Rt. Hon. F. O. (W. Brom.) | |
| NOES. | ||
| Acland-Troyte, Lt.-Col. G. J. | Drewe, C. | Liddell, W. S. |
| Adams, S. V. T. (Leeds, W.) | Duggan, H. J. | Lindsay, K. M. |
| Albery, Sir Irving | Duncan, J. A. L. | Lipson, D. L. |
| Amery, Rt. Hon. L. C. M. S. | Eastwood, J. F. | Little, Sir E. Graham- |
| Anstruther-Gray, W. J. | Eckersley, P. T. | Loftus, P. C. |
| Apsley, Lord | Eden, Rt. Hon. A. | Lyons, A. M. |
| Aske, Sir R. W. | Edge, Sir W. | Mabane, W. (Huddersfield) |
| Astor, Viscountess (Plymouth, Sutton) | Edmondson, Major Sir J. | MacAndrew, Colonel Sir C. G. |
| Atholl, Duchess of | Elliot, Rt. Hon. W. E. | McCorquodale, M. S. |
| Baldwin-Webb, Col. J. | Emery, J. F. | McKie, J. H. |
| Balfour, Capt. H. H. (Isle of Thanet) | Emrys-Evans, P. V. | Macnamara, Capt. J. R. J. |
| Baxter, A. Beverley | Errington, E. | Margesson, Capt. Rt. Hon. H. D. R. |
| Beauchamp, Sir B. C. | Evans, Capt. A. (Cardiff, S.) | Markham, S. F. |
| Beaumont, M. W. (Aylesbury) | Everard, W. L. | Maxwell, Hon. S. A. |
| Beaumont, Hon. R. E. B. (Portsm'h) | Fildes, Sir H. | Mayhew, Lt.-Col. J. |
| Beechman, N. A. | Findlay, Sir E. | Mellor, Sir J. S. P. (Tamworth) |
| Beit, Sir A. L. | Fleming, E. L. | Mills, Major J. D. (New Forest) |
| Bernays, R. H. | Fremantle, Sir F. E. | Moore-Brabazon, Lt.-Col. J. T. C. |
| Bird, Sir R. B. | Fyfe, D. P. M. | Morgan, R. H. |
| Boothby, R. J. G. | Canzoni, Sir J. | Morrison, G. A. (Scottish Univ's.) |
| Boulton, W. W. | Gibson, Sir C. G. (Pudsey and Otley) | Morrison, Rt. Hon. W. S. (Cirencester) |
| Bracken, B. | Gledhill, G. | Munro, P. |
| Brass, Sir W. | Gluckstein, L. H. | Neven-Spence, Major B. H. H. |
| Briscoe, Capt. R. G. | Goldie, N. B. | Nicolson, Hon. H. G. |
| Brocklebank, Sir Edmund | Granville, E. L. | O'Connor, Sir Terence J. |
| Brown, Rt. Hon. E. (Leith) | Greene, W. P. C. (Worcester) | O'Neill, Rt. Hon. Sir Hugh |
| Bull, B. B. | Gretton, Col. Rt. Hon. J. | Orr-Ewing, I. L. |
| Burghley, Lord | Gridley, Sir A. B. | Patrick, C. M. |
| Campbell, Sir E. T. | Grimston, R. V. | Peake, O. |
| Gartland, J. R. H. | Gritten, W. G. Howard | Peat, C. U. |
| Cary, R. A. | Guest, Lieut.-Colonel H. (Drake) | Petherick, M. |
| Castlereagh, Viscount | Guinness, T. L. E. B. | Plugge, Capt. L. F. |
| Cayzer, Sir C. W. (City of Chester) | Gunston, Capt. D. W. | Procter, Major H. A. |
| Cazalet, Thelma (Islington, E.) | Hannah, I. C. | Ramsbotham, H. |
| Cazalet, Capt. V. A. (Chippenham) | Harbord, A. | Rathbone, J. R. (Bodmin) |
| Clarke, Lt.-Col. R. S. (E. Grinstead) | Hartington, Marquess of | Rayner, Major R. H. |
| Cobb, Captain E. C. (Preston) | Haslam, Henry (Horncastle) | Reed, A. C. (Exeter) |
| Colman, N. C. D. | Heilgers, Captain F. F. A. | Reid, J. S. C. (Hillhead) |
| Colville, Lt.-Col. Rt. Hon. D. J. | Heneage, Lieut.-Colonel A. P. | Reid, W. Allan (Derby) |
| Conant, Captain R. J. E. | Hepburn, P. G. T. Buchan- | Remer, J. R. |
| Cook, Sir T. R. A. M. (Norfolk, N.) | Herbert, Major J. A. (Monmouth) | Rickards, G. W. (Skipton) |
| Courthope, Col. Rt. Hon. Sir G. L. | Herbert, Capt. Sir S. (Abbey) | Robinson, J. R. (Blackpool) |
| Cox, H. B. T. | Higgs, W. F. | Ross Taylor, W. (Woodbridge) |
| Cranborne, Viscount | Holmes, J. S. | Rowlands, G. |
| Crooke, J. S. | Hope, Captain Hon. A. O. J. | Royds, Admiral P. M. R. |
| Crookshank, Capt. H. F. C. | Horsbrugh, Florence | Russell, R. J. (Eddisbury) |
| Croom-Johnson, R. P. | Hudson, R. S. (Southport) | Russell, S. H. M. (Darwen) |
| Cross, R. H. | Hume, Sir G. H. | Salt, E. W. |
| Crossley, A. C. | Kerr, H. W. (Oldham) | Samuel, M. R. A. |
| Crowder, J. F. E. | Kerr, J. Graham (Scottish Univs.) | Sanderson, Sir F. B. |
| Cruddas, Col. B. | Keyes, Admiral of the Fleet Sir R. | Savery, Sir Servington |
| Culverwell, C. T. | Kimball, L. | Scott, Lord William |
| Davies, Major Sir G. F. (Yeovil) | Lamb, Sir J. Q. | Shaw, Major P. S. (Wavertree) |
| Denman, Hon. R. D. | Law, Sir A. J. (High Peak) | Simon, Rt. Hon. Sir J. A. |
| Donner, P. W. | Law, R. K. (Hull, S.W.) | Smith, L. W. (Hallam) |
| Dorman-Smith, Major Sir R. H. | Leighton, Major B. E. P. | Smith, Sir R. W. (Aberdeen) |
| Somervell, Sir D. B. (Crewe) | Thomas, J. P. L. | Willoughby de Eresby, Lord |
| Somerville, A. A. (Windsor) | Tryon, Major Rt. Hon. G. C. | Wilson, Lt.-Col. Sir A. T. (Hitchin) |
| Southby, Commander Sir A. R. J. | Tufnell, Lieut.-Commander R. L. | Windsor-Clive, Lieut.-Colonel G. |
| Spans, W. P. | Wakefield, W. W. | Winterton, Rt. Hon. Earl |
| Stanley, Rt. Hon. Oliver (W'm'I'd) | Ward, Lieut.-Col. Sir A. L. (Hull) | Wise, A. R. |
| Stewart, J. Henderson (Fife, E.) | Ward, Irene M. B. (Wallsend) | Womersley, Sir W. J. |
| Storey, S. | Wardlaw-Milne, Sir J. S. | Wood, Hon. C. I. C. |
| Strauss, E. A. (Southwark, N.) | Waterhouse, Captain C. | Young, A. S. L. (Partick) |
| Strickland, Captain W. F. | Wayland, Sir W. A | |
| Stuart, Hon. J. (Moray and Nairn) | Wells, S. R. | TELLERS FOR THE NOES.— |
| Sueter, Rear-Admiral Sir M. F. | Whiteley, Major J. P. (Buckingham) | Mr. Furness and Lieut.-Colonel |
| Taylor, C. S. (Eastbourne) | Wickham, Lt. Col. E. T. R. | Kerr. |
| Taylor, Vice-Adm. E. A. (Padd., S.) | Williams, H. G. (Croydon, S.) |
§ 11.22 p.m.
§ The Attorney-GeneralI beg to move, in page 78, line 36, at the end, to insert:
6. Where, in respect of any profits arising from a trade or business, relief from Income Tax chargeable in the United Kingdom is granted by virtue of arrangements with the Government of any other country, being arrangements which for the time being have effect either—
- (a) under Section eighteen of the Finance Act, 1923 (which as amended by Section thirty-one of the Finance Act, 1924, and Section nine of the Finance Act, 1931, provides for the relief of shipping and air transport from double taxation); or
- (b) under Section seventeen of the Finance Act, 1930 (which provides for the relief of certain agencies from double taxation);
those profits shall not be included in the profits arising from that trade or business, if and so long as the profits of trades or businesses which, by virtue of those arrangements, are relieved from Income Tax chargeable in that other country, are relieved from all taxes chargeable in that other country on the profits of trades or businesses.In the Section of the Finance Act referred to in this Amendment there is power to arrange reciprocal agreements with foreign countries for mutual exemption from taxes in respect of certain activities, namely shipping, air transport and certain agencies. The object of the Amendment is that, in cases where there are such agreements for reciprocal avoidance of double taxation, we shall be empowered to relieve the profits of a company in a country with which we have made an agreement from National Defence Contribution here provided that under the agreement a company resident here gets relief from all taxes on its profits in so far as they arise in that foreign country. It is simply an extension of a valuable principle already enshrined in our Finance Act to National Defence Contribution where we are getting full relief from all taxes on profits arising in a foreign country in respect of companies resident here part of whose profits may arise in that foreign country.Amendment agreed to.
§ 11.21 p.m.
Major HillsI desire to move, in page 79, line 10, at the end, to insert:
(b) in the case of an assurance business, other than the business of life assurance, capital redemption and annuity business, the profits shall include interest at the average rate received from its investments on a sum representing the nett premium income of the business, but not exceeding the actual amount of interest received.The Amendment concerns the important point of the investments of the general insurance companies and not the life insurance companies or those that do annuity business. It asks for a concession in respect of the provision that all the income from the investments of those companies is to be subject to the National Defence Contribution. I am ready, and more than ready, to admit proper liability, but I feel—and I say this with all sincerity—that in the present case they are in a different position from that which the Chancellor of the Exchequer has stated. He put the insurance companies in the class of companies, the income on whose investments ought to be taxed, by saying that the whole of the investment is an essential part of the business of an insurance company. On 7th July, he said that the holding of these investments is essentially the business of insurance companies. On these grounds he decided that insurance companies are subject to the National Defence Contribution on the income from the investments which form their reserves. Is the making of these investments essentially the business of the insurance company?I will take an example of what the word "essential" means. I will take the Chancellor of the Exchequer himself. It is essential that the Chancellor of the Exchequer should eat. But eating is not wholly or mainly the business of the Chancellor of the Exchequer. He is a civilised being and eats to live, but does not live to eat. That is the distinction I make in all seriousness between the position of 1647 these companies and trust companies. The holding of investments is essential to these companies, but it is not the whole or main business of these companies. I agree that they cannot live without investments, but the making of investments is not their whole or main business. Their whole or main business is underwriting, and for the purpose of underwriting it is essential that they should hold investments. They differ from banks and trust companies in this respect. In the case of a bank the holding of investments is its whole or main business. A bank takes its customers' money and invests it. It is the same with a trust company. It takes its shareholders' money and invests it. Therefore, the holding of investments is the whole or main business of trust companies, and they are properly taxed. The Chancellor of the Exchequer further said that assurance companies used their investments as an advertisement; they advertised the fact that they held investments as part of their business. Certainly they do, but the business for which they canvass is underwriting business. They hold out these investments as a sign of their strength for the purpose of underwriting, and not for the purpose of acquiring other investments.
§ Mr. SpeakerThe right hon. and gallant Gentleman is under a misapprehenson. We have already passed paragraph (6) of this Schedule which includes all assurance companies. He is now proposing to leave out life assurance companies. That would not be consistent with what is already in the Bill.
§ Mr. SpeakerThe right hon. and gallant Gentleman should have moved his two Amendments which are on the Paper before this one, otherwise, it will not be read. Perhaps the Chancellor of the Exchequer will put me right on the point, if that is not so.
§ 11.30 p.m.
§ Sir J. SimonI am unwilling to interfere, but I think Mr. Speaker is right in his interpretation. Paragraph 6 says that income received from investments shall be included in the case of an assurance business. The right hon. and gallant 1648 Member proposed to include life insurance business and capital redemption and annuity business, but he has not thought it necessary to move his first two Amendments, and therefore I do not see we can now deal with special arrangements for capital redemption and annuity business.
§ Mr. SpeakerThe Chancellor of the Exchequer agrees with me on the point I raised, and the Amendment of the right hon. and gallant Member is out of order.
Major HillsI did not move my Amendments dealing with life insurance and capital redemption and annuity business because I did not want to waste the time of the House. I regarded the present Amendment as an exception to the general terms of insurance companies.
§ Mr. SpeakerIt would be inconsistent with what we have already passed in the Bill, and I must rule it out of order.
§ 11.33 p.m.
§ Sir J. SimonI beg to move, in page 79, line 18, after "which," to insert:
either alone or in conjunction with any statutory undertakers.It has been pointed out that the provision in the Bill would not meet the case of a company holding in conjunction with a statutory undertaking. It is a technical adjustment to meet this particular case.Amendment agreed to.
Further Amendment made: In page 79, line 21, leave out "those undertakers," and insert "that other body corporate."—[Sir J. Simon.]
§ 11.34 p.m.
§ Lieut.-Colonel ColvilleI beg to move, in page 79, line 31, after "of," to insert "United Kingdom."
This Amendment is consequential upon an Amendment accepted in the Committee stage to allow Dominion Income Tax as a deduction for the purposes of the National Defence Contribution.
Amendment agreed to.
§ 11.35 p.m.
§ Sir J. SimonI beg to move, in page 79, line 41, after "directors," to insert "other than whole-time service directors."
1649 This is an important Amendment, and is one which, I think, will commend itself to the House. The House knows that the Bill embodies a scheme to secure that in the case of companies which are controlled by their directors, it shall not be possible for the directors so to manipulate the remuneration they receive as to draw away from the pool of profits and leave nothing for the tax to operate upon. I think it is agreed on all hands that such an arrangement is proper; but it has been pointed out, as is perfectly true, that cases do arise in which the person who holds the position of director holds it only because he has been allotted a few shares, and that the real position is that he is employed as a full-time service director of the company.
It is not in agreement with the spirit of the Bill that we should, include such whole-time service directors, but that, of course, is always subject to this, that we define whole-time service directors and limit them to such servants of the company as only have a small shareholding. The whole-time service director holding many shares is not omitted from the calculation, but is included. I propose later on to introduce a definition Clause which limits this exception to whole-time service directors who do not hold more than 5 per cent. of the shares. We must not, of course, depart from the principle that a director controlling a company cannot so manipulate the profits as in fact to avoid the incidence of the tax. By that I stand, but it was never my intention to include in this calculation a man who is really a servant of the company and who, it may be for purposes of convenience, has been given a director's qualifications. When the House bears in mind that I intend to define a whole-time service directorship so as to limit it to a person holding not more than 5 per cent. of the shares, I hope it will be satisfied that this is a proper proposal, and one which carries out entirely the principle which we recognise.
§ 11.37 p.m.
§ Mr. PrittI am sure all my hon. Friends accept the principle which the right. hon. Gentleman has put forward, but we wonder whether there is sufficient safeguard against the comparatively simple trick of a person who really holds a substantial shareholding in a company 1650 making himself into a whole-time service director by having the shares held by a nominee.
§ Sir J. SimonI think we shall be able to meet that.
§ Mr. H. G. WilliamsI would like to thank the Chancellor for his Amendment, which entirely meets the point which I put on the Committee stage. Therefore, I shall not seek to move the Amendment which stands in my name, and in the names of my hon. Friends, to Schedule 4, page 79, line 44. I am very grateful to the right hon. Gentleman.
§ 11.38 p.m.
§ Mr. Pethick-LawrenceIn reply to my hon. and learned Friend, the Chancellor made a remark while he was sitting down, and I am not sure it will get into the OFFICIAL REPORT. I do not know whether he intended it to be heard or not.
§ Sir J. SimonThe hon. and learned Gentleman put a quite important point. He asked whether we shall be able to secure that our intentions are not defeated by the device of putting shares in the name of a nominee. I had previously consulted those who advise me about that question. We are not entirely without experience of this kind of arrangement, and it existed in a rather different form in the Corporation Profits Tax. Those who advise me tell me that they are pretty confident that they will be able to secure that our real intentions are carried out. I think we should proceed on that basis. Needless to say, and I hereby give public notice of the fact, if there was reason to think that the arrangement we are now making was being defeated by any such device, then I am quite certain Parliament would not be content, and we should have to take more active steps to stop it.
§ Sir Irving AlberyI would like to put a point with reference to the family business in which one member of the family practically directs the business. Such a case, I imagine, would come under the definition of whole-time service director, but in that case, the person might very well hold a larger percentage of the shares than that provided. I was wondering whether such a case would be ruled out.
§ Sir J. SimonHe would be ruled out in this way, that, although he might be a 1651 whole-time service director in that sense, he would not satisfy the definition which it is proposed to insert later in the Schedule.
Amendment agreed to.
Further Amendment made: In page 79, line 44, after "directors," insert "other than whole-time service directors."—[Sir J. Simon.]
§ 11.40 p.m.
§ Sir J. SimonI beg to move, in page 80, line 6, at the end, to insert:
11.—(1) In the case of a trade or business carried on in any chargeable accounting period by an individual or individuals in partnership, he or they may claim that there shall be allowed as a deduction in respect of that period the greatest amount which could have been allowed as a deduction under the last foregoing paragraph in respect of the remuneration of the directors other than whole-time service directors, if the trade or business had been carried on in that period by a company the directors whereof had a controlling interest therein:Provided that where a deduction is made under this paragraph as respects any period, the profits arising from the trade or business in that period shall be chargeable to the national defence contribution at the rate applicable in the case of a trade or business carried on by a body corporate.(2) Any claim under this paragraph shall be made by notice in writing given to the Commissioners of Inland Revenue within one month from the end of the chargeable accounting period in question.
§ Mr. Pethick LawrenceI think we ought to have an explanation of this Amendment.
§ Sir J. SimonThe right hon. Gentleman is quite right in asking for an explanation. It was pointed out during the Committee stage that the scheme of the Bill as it then stood, applying the tax to companies which are director-controlled, and allowing certain deductions which were then defined as maximum deductions, would have, in certain cases, this effect. When those deductions were allowed and tax was then charged at the rate of 5 per cent., the amount of duty which became payable would contrast with the duty payable by a partnership which was charged at the rate of 4 per cent. with no deductions allowed, and in some cases the partnership would be worse off than the director-controlled company. I think I remember saying in Committee that there was no mathe 1652 matical formula which would avoid that result, and that is the case. But I have thought it well to propose that, in the case of a partnership where the charge would be heavier because of this distinction to which I have referred, the partnership should have the right to claim to be treated as though it was a director-controlled company. The result will be that the partnership will have to pay 5 per cent. instead of 4 per cent., but it will be entitled to make these deductions. That proposal has this great advantage which will appeal to the House, that beyond all question the partnership and the director-controlled firm will be treated on an equality. Otherwise, cases of hardship might arise, and, what is more, cases of unjustifiable hardship where we would be hitting the partnership harder than the company. I am obliged to the right hon. Gentleman for having called for an explanation of this point, because I think it is very important.
Amendment agreed to.
Further Amendment made: On page 80, line 7, leave out "the foregoing provisions of."—[Sir. J. Simon.]
§ Sir J. SimonI beg to move, in page 80, line 23, to leave out "and for the purpose of sub-paragraph (b) of this paragraph," and to insert:
(c) the expression 'whole-time service director' means a director who is required to devote substantially the whole of his time to the service of the company in a managerial or technical capacity and is not the beneficial owner of more than five per cent. of the ordinary share capital of the company; and (d)This Amendment introduces the definition of "whole-time service director" to which I have referred.
§ 11.44 p.m.
§ Mr. MabaneIt occurs to me that, "ordinary share capital" in this definition must include participating preference shares, which would carry to them no voting control or the company. Are we to understand that such an enterpretation is correct and that if the person were to own more than 5 per cent. of participating preference shares he would be excluded from this definition?
§ Mr. McCorquodaleI also was going to ask my right hon. Friend whether he 1653 would define a little more closely the word "ordinary" in this correction.
§ 11.45 p.m.
§ Sir J. SimonThere is, I think, a definition, on page 80 of the Bill, as follows:
The expression 'ordinary share capital' means all the issued share capital (by whatever name called) of the company, other than capital the holders whereof have a right to a dividend at a fixed rate or a rate fluctuating in accordance with the standard rate of income tax, but have no other right to share in the profits of the company.That definition will apply for all the purposes of the Fourth Schedule, not only, of course, to sub-paragraph (b), but everywhere, and it does, therefore, apply here. I do not think we can define it further than this, and I suggest that we do meet the case fairly if we say that we cannot make an exception in the case of a whole-time service director unless the individualis not the beneficial owner of more than five per cent of the ordinary share capitalas so defined.
§ 11.47 p.m.
§ Mr. Pethick-LawrenceThis is rather a technical point, and I am not quite clear about it. Supposing a company so arranged its business that the preference shareholders should really take the whole of the profits, a particular individual might be a very large preference shareholder and take the bulk of the profits, and yet he might have less than 5 per cent. of the ordinary shares. As I understand it, if he takes his interest in the company in that form, he will be able to get away with it, but I am not quite sure that I have got it right. I would suggest that there is a loophole here which the Chancellor has not stopped up, and if that is the case, I think the right hon. Gentleman ought to look into it and see whether something cannot be done in the matter.
§ Mr. C. S. TaylorDoes it not largely hinge on what rate of interest is paid?
§ 11.48 p.m.
§ The Attorney-GeneralThe definition follows the ordinary principles and differentiates between a preference share at a fixed rate of interest and a share which is at an uncertain rate of interest. Therefore, I think the principle which my right hon. Friend has adopted is right. I am 1654 not forecasting that we may not find that ingenious people may find devices by which the general intention and the form which this legislation takes is evaded. I do not for the moment see how it can be done, but if it was found that someone, although within the letter of the definition of a whole-time service director holding less than 5 per cent. of the ordinary share capital was, by some arrangement, getting round the Clause or that the capital was so arranged that in effect there was such a large issue of preference shares that in no ordinary circumstances would the fixed rate be attained—I can see that there might be cases of that kind—then undoubtedly my right hon. Friend would consider whether some alteration was necessary. I suggest that the exemption as it is drafted should be accepted.
§ Sir I. AlberyWould it not be better to make the qualification the holding of not a larger shareholding than a certain percentage?
§ 11.50 p.m.
§ Sir J. SimonI know how carefully this has been looked into. I spent some time with the Parliamentary draftsman on it. I feel sure myself that the definition of ordinary share capital which is here, which has been very carefully considered with a desire to stop all possible evasions, is really the best. I would be most unwilling, while recognising the sincerity of the suggestion made by my hon. Friend, to change a thing of this sort just now. The ordinary shares get the residue of the profits after various fixed charges have been met. We do not want to do any injury to the man who is really employed by the company, and if he holds only a limited portion of the ordinary shares he should get relief. If he holds a large share, I do not think that we should let him off. This Amendment has been carefully drawn, and if there is a loophole I have no doubt that we shall be able to stop it. But I do not think we shall stop it by acting in anticipation here.
Amendment agreed to.
§ FIFTH SCHEDULE. — (Assessment and Collection of National Defence Contribution, Appeals and Supplementary Provisions.)
§ 11.53 p.m.
§ Lieut.-Colonel ColvilleI beg to move, in page 83, line 7, after "return," to insert:
(in such form as the Commissioners of Inland Revenue may prescribe).
§ Lieut.-Colonel ColvilleThe point is that the Fifth Schedule provides for the rendering of returns, and we want to make it clear that the Commissioners of Inland Revenue shall prescribe the form of return. There is nothing novel about that. It is part of the existing procedure and it is necessary to make provision for it under this tax.
Mr. AlexanderWe ought to know. The form prescribed should, as far as possible, be uniform. I asked a plain question, whether the arrangement was such as to make the form uniform or so that it could be varied?
§ 11.54 p.m.
§ Sir J. SimonThe right hon. Gentleman does not want to have as many forms as there are taxpayers. That, of course, is right enough. The words which will be inserted:
in such form as the Commissioners of Inland Revenue may prescribe,are intended to provide for a standard form. If there are any variations, as we sometimes see, "insert either A or B", according to the circumstances, that will appear on the form; but it is intended to have standard forms in the ordinary official way.Amendment agreed to.
Bill to be read the Third time tomorrow.