CLAUSE 32.—(Provisions as to subsidiary companies.) (Hansard, 11 June 1947)

§ Mr. Eccles
I beg to move, in page 29. line 3, at the end, to insert: If at any time a subsidiary as defined by Section twenty-two of the Finance Act, 1937, as amended, has not previously been the subject of a notice under that Section but is the subject of a notice given by the principal company within six months of the passing of this Act the like sums may be carried forward under paragraph z and sub-paragraph (2) of paragraph 3 of the Fourth Schedule to the said Act from previous chargeable accounting periods during which or during part of which the subsidiary was a- subsidiary of that principal company as might have been carried forward from those periods for the purpose of the profits tax in respect of the trade or business of the subsidiary if no such notice had been given and the said sums may be treated for the purpose of the profits tax in respect of the trade or business of the principal company as if they had been carried forward in respect of the trade or business carried on by it. I am afraid that this is a rather complicated Amendment. When E.P.T. and N.D.C. were introduced, companies were entitled to elect whether or not their subsidiaries should be aggregated with the parent company. There was' no particular point in certain circumstances, in making the election, and nobody bothered very much about it. But now that we are to have a permanent Profits Tax, it makes considerable difference to companies whether or not they elect to have their subsidiary accounts grouped with the parent companies. The point of this Amendment is that it would permit a company to elect to have its subsidiaries 1181 grouped with it and to carry forward any losses which the subsidiary had made in past years when there was no point in making this election. I think that is reasonable, and I hope that the Solicitor-General will be able to accept the Amendment. Even if the words are not quite right—I do not understand them myself—I think the idea of the Amendment is pretty fair.

§ The Solicitor-General
This is a very technical matter. What the Amendment would seek to do, as I read it, would be to bring it about that a group could treat its subsidiaries' losses for the purpose of ascertaining the profits of the parent company as distinct from setting them off against the profits of the subsidiaries, notwithstanding that no notice had been given to treat the subsidiary as a member of the group. The matter can always be rectified by giving notice and by electing for group treatment. We feel that that cannot be said to be any justification, looking at it from the general ground of equity, for asking for the same treatment in respect of the losses of a subsidiary before it has become a member of the group, when the notice has not been given, as is allowed when the notice has been given. We feel that no case has been made out for that, and it really makes the giving of notice a rather unimportant matter. For these reasons I ask the Committee to say that there are not sufficient grounds for the adoption of the Amendment.

§ Mr. Assheton
I do not know whether the hon. Member for Dumbarton Burghs (Mr. Kirkwood) would object to the Government giving way over this Amendment. It has nothing whatever to do with directors, and the hon. Member need not fear that anybody is going to get away with anything. I do not know whether the Solicitor-General has in mind Clause 36 (2), which gives a right to aggregate and carry forward losses in the case of different trades carried on by one person, which have been separately assessed in the past, but which from 1st January this year, are to be aggregated. It seems to me that there is a precedent here, if we may call it that, which the Solicitor-General might well bear in mind between now and the Report stage, and if he were able to help us over this, we should be very much obliged.

§ Mr. Eccles
There is just one other question on this difficult Clause. I understand that, under E.P.T., companies could charge up to the minority shareholders in subsidiaries, if they elected to have profits treated on an aggregate basis, the proportion of E.P.T. There is nothing in this Clause which would enable a parent company, which had elected to have its subsidiaries aggregated with itself, to charge up to the minority shareholders of a subsidiary their proportion of the Profits Tax. I was wondering whether the Chancellor, knowing that it is not a very big point and one which will not occur very often, though it will occur in certain cases, could perhaps give an assurance that such companies could go to the Commissioners and make an arrangement or a contract showing what was the percentage of the minority shareholders in that subsidiary, and, by agreement with the Commissioners, charge up to those minority shareholders their proportion of the tax. If that cannot he done, then it is obvious that the shareholders of the parent company would hear more than their proper share. I do not think it is at all an impossible arrangement to make, and I ask the learned Solicitor-General if he could give me some answer about it.

§ The Solicitor-General
The position is not quite the same in the case of E.P.T. as it is with regard to Profits Tax. I will certainly consider what the hon. Gentleman has said, but I feel that it would be feasible to assimilate the two in that respect, and give precisely the same rights of recovery to the parent company against the subsidiaries. The position is not really similar, but we will consider the matter, although I feel that, at the moment, it will not be possible to make any such alteration as has been suggested.