CLAUSE 24.—(Succession and amalgamation.) (Hansard, 12 July 1939)

§ Mr. Spens
I beg to move, in page 26, line 23, after "that," to insert: (a) where the change consists of the death or retirement of a partner, or the taking in of a partner, the persons carrying on the business after the change may, by notice in writing to the Commissioners, elect that the business shall not be deemed to have been discontinued and that a new business shall not be deemed to have commenced; and. The following Amendment deals with the same point. One refers to partnership, and the other to companies and corporations. My hon. Friend the Member for Eastbourne (Mr. C. S. Taylor) raised this point on the Second Reading, and pointed out that, as the Bill was drafted, it might be possible for present owners of certain businesses which have been in existence for a very long time to find themselves under a very great hardship compared with their competitors in cases where there had been an alteration in the 2294 ownership since 1st July, 1936, because any alteration in ownership made the business a new business, and, therefore, the basic profit standard would be arrived at on the percentage of profit on the average capital employed in the business and not on the actual result of past working in the material years which would be applicable had the business continued throughout in the same ownership. I apprehend that, as the right hon. Gentleman has said that the percentage on a capital basis is a rough-and-ready rule, and it is made applicable to new businesses in any event, it is not intended to be too kind to those businesses which have been started up since 1st July, 1936. But, be that as it may as regards new businesses, it is clear that there are certain businesses which have been going on for a very long time and have changed ownership since July, 1936, and which, in fact, employ a comparatively small amount of working capital and whose profit results in the past are substantially higher than would be a percentage based on their working capital in this or any future year. Therefore, you get this position, that you might have a business which has been in existence for 40 or 50 years whose basic profit standard, if assessed and calculated on the basis that it remains in one ownership, might work out at £50,000 or £60,000, according to the option which the owners took, but which, if it is to be treated as a new business on a percentage standard, might find itself with a basis of something substantially less.
The fact that one company, because there happened to have been a transfer of ownership since July, 1936, would be liable to pay a much greater sum in taxation than a competitor must inevitably handicap it severely against that competitor. Therefore, it is for my right hon. Friend and the House to consider whether or not a mere transfer of ownership should have such possibly very hard results on a particular firm. There is no good reason why, if the transfer is only a technical change of ownership, that result should follow. In the old Excess Profit Duty legislation of 1915 it was recognised that you might have changes of ownership which were really only technical from the point of view of the tax such as the introduction of a partner, or the transference of the business from a private to a public company, or from one 2295 person to another, the earning capacity and the direction of the business remaining wholly undisturbed. In that legislation certain provisions were put in to deal with this, and it is on those provisions that these two Amendments have been based. The first merely provides that, where the change only consists of the death or retirement of a partner, or the taking in of a new partner, the business shall be treated as if it had gone on without any disturbance. The second deals with a case where the change of ownership has been an actual transference in law from one person to another, or one company to another, and where the business, or the main part of the business, has been so transferred and goes on undisturbed it is suggested that the present owners may make application to the Commissioners to have themselves treated as if the business had remained in one ownership throughout and the Commissioners are given power to agree to that either in toto or on terms, or to refuse it. A right of appeal is given to the taxpayer against a refusal, or against the imposition of some term or modification that he regards as unfair.

§ Mr. Boulton
I beg to second the Amendment.

§ Sir J. Simon
I think there is a good deal to be said for these Amendments. I do not think the first is likely to have any very considerable operation in practice. Enterprises that have been paid £200,000 a year for armament contracts would not usually be found to be partnerships. It seems to me that if there were such cases, it is manifestly good sense that you should not say that the business of the partnership, carried on perhaps for many years and carried on after the death or retirement of one of the partners, ought to be regarded as a new business. It is an almost accidental circumstance that the members of the partnership have changed. If the business is being carried on as before, it seems very gratuitous to say that it is a new business, for what may be an accidental cause, such as a change in partnership. If you did so, you would increase the number of cases in which you would have to rely on a valuation of capital, when you need do nothing of the kind, if the business is one which is carried on notwithstanding that a partner 2296 has dropped out or been changed. I do not regard that as an important point, because I do not think it will arise in practice.
The other Amendment is certainly more important, and here again I am anxious that we should consider whether this provision is rightly safeguarded. I would not consent to insert the bald provision that whenever one company sells its undertaking, or part of its undertaking, to another company, the business shall in all cases be treated as a continuing one. That would leave open the door to some cases which we should not be disposed to let out. But undoubtedly there are cases, which can be easily imagined, in which there has been a transfer from one company to another, a reconstruction or something of the kind, where, under suitable safeguards, it appears to me to be wise and right to treat the business as a continuous business, so that you will be able to rely on the standard profit basis. But I would call particular attention to the words of the Amendment at the end of the first paragraph: "Subject, however, to such modifications … as may be just." I think we can trust the Commissioners here, and on appeal the Board of Referees, to see that any necessary adjustment is made, and if the necessary adjustment is made in a case which calls for it, I would ask the House to approve of the principle.
We are seeking to impose Armament Profits Duty on a business. It would never do to say that the business should be looked at without considering who the owners are. That might give the opportunity to owners, after they had made perhaps a great big profit, to dispose of their business to a newly created company and claim that they were newborn, starting at that moment all over again, with results that would not be satisfactory or fair to the Revenue; but in cases where the business was carried on before 1st July, 1936, and it, or the main part of it, was then transferred before 1st April, 1939, to another person, I think it is for the better working of this particular system—and I shall not lose revenue by it—if we say that the Commissioners, if they are satisfied that the business carried on after the transfer is substantially the same as that carried on before, may decide to treat the business as continuous 2297 for the purpose of standard profits, with the precaution "subject to such modifications as may be just." The Commissioners, I am certain, while desiring to do what is fair and right, will at the same time be able to watch the interests of the Revenue in the matter, and if there be a subject of further dispute, the matter can go to the Board of Referees, in whom, I think, we can have the greatest confidence.
But I do not want there to be any misunderstanding on the part of any business now being carried on by a newly created company. It does not at all follow, because it has been transferred from the old to the new company, that in all cases it will be treated as a continuous affair, without modification, but there may be cases in which it is right to do so, and where it is right to do so, I would very much sooner rely on a standard based on the actual experience of the business in profits than have to substitute unnecessarily an alternative standard for the calculation of profits.

§ Mr. Pethick-Lawrence
With regard to the first Amendment, the one now before the House, I do not think anyone can have any doubt that it is sound. With regard to the second Amendment, I think that in all probability, and with the safeguards that are imposed, it will not work out with unfairness either to the Revenue or to the taxpayer, and, therefore, I see no objection to either Amendment.