§ Mr. Selwyn Lloyd
I beg to move, in page 15, line 16, to leave out "not."
I suggest for the convenience of the Committee that we might consider this Amendment with the next on the Order 642 Paper, line 17, leave out from "to," to end of line 18, and add:an annual payment only in the proportion which the net United Kingdom rate (as referred to in section fifty-two of the Finance (No. 2) Act, 1945) bears to the full standard rate of tax.I do not know whether the last discussion seemed to certain hon. Members to be fairly complicated, but I can warn them this will be infinitely more complicated, and I think the task of attempting to understand what I am going to say will be almost insuperable. If anyone wants to leave the Chamber now is a very convenient time to do so. To have to attempt to address this Committee at this time of the morning on the subject of double taxation relief really imposes a very heavy strain on all concerned.
Where tax has been deducted from annual payments, and there is no profits chargeable on the taxpayer who deducted the tax that tax was collected by a special assessment under Rule 21 of the Income Tax Act of 1918. That interest or annual payment was an outgoing on which tax had been collected under Rule 21 assessment, but because no profits were to be assessed no allowance could be made under the deductor's assessment. Therefore he was allowed the right to claim a Rule 21 assessment as a loss for certain purposes.
This Clause, as I understand it, takes away the whole of that right in a case where double taxation relief has been given. I think I am correct in saying that is the purport of the Clause. That I suggest is quite inequitable in all the circumstances. I can best illustrate my point to the Committee by giving an example. If the annual payment is £10 made out of dividends subject to double taxation relief the tax is therefore £4 10s. on that amount. The payer of the annual payment deducts that tax but the payer has made no profits, therefore the Rule 21 assessment is made on the payer to collect the £4 10s. to be deducted by him. If he had been assessable on profits he would be entitled to bring that £10 payment into account. Therefore, if he does not make a profit he should be entitled to carry forward that £10 payment as a loss and so get credit for £4 10s. under the Rule 21 assessment.
Section 19 of the Finance Act, 1928, allowed him to do that in certain cases 643 for certain purposes, and this Clause, as I have said, takes away that right for double taxation relief and affects moneys out of which the £10 has been paid. To take a case, by way of example, suppose the double taxation relief amounts to 15 per cent. of the total sum and the total rate of tax is 45 per cent. and the foreign tax is 15 per cent. Therefore, the net United Kingdom rate is 30 per cent. That would mean, therefore, on the payment of £10 the net United Kingdom rate of tax would be £3 as opposed to £4 10s. If double taxation relief is given, I concede at once that the whole of the payment of £10 should not be allowed to count as loss. That would be going too far. My submission is that two-thirds of the payment of £10 should rank as loss. That is the purpose my Amendment seeks to effect. It is logical, administratively feasible; it only covers an exceptionally small number of cases, but it is just and I ask the Solicitor-General to accept this reasonable Amendment.
§ The Solicitor-General
If I may take the example given by the hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd), I think what he has failed to take into account is the concluding words of subsection (4) of Section 52 of the Finance (No. 2) Act, 1945. What happens is that the payer who pays out of the dividend on which double taxation relief has been received deducts from the £10 the £4 10s. of which he spoke. He is only treated under General Rule 21 as having paid £10 out of untaxed income to the extent of the excess of the total tax over the net United Kingdom rate. That the hon. and learned Gentleman has overlooked. What he wants to do is to enable the payer to carry forward as a loss two-thirds of the £10, and regain tax by treating it as a loss at the net United Kingdom rate. It is the net United Kingdom rate he is allowed to keep. He is only treated as having paid £10 out of untaxed income in respect of the excess, so that the only amount he has to pay over to the Revenue is the excess over the United Kingdom rate in the £4 10s.
Suppose the standard rate is 9s. and he pays an annual payment of £1, to take a simple figure, and relief has been re- 644 ceived in respect of 3s. foreign tax. The net United Kingdom rate is 6s. He deducts from the recipient of the annual payment 9s.: he keeps, and is entitled to keep 6s., the net United Kingdom rate; he has to account to the Exchequer for 3s., that is to say, the equivalent of the foreign tax in respect of which double taxation relief has been received. The Amendment, moved by the hon. and learned Gentleman, which proposes that he shall keep the 6s., has, if I may say with all respect to him, no merits whatever to support it. He keeps the 6s. in any case. There can be no ground for saying that he should be entitled to treat the pound, so far as the 6s. tax on it is concerned, as a loss against which he can deduct further profits. He is already entitled to keep that and put it into his pocket.
There might have been an argument in regard to the balance of 3s., but there is not a case for that either on the merits, because the Exchequer must get the 9s. There is no reason why the recipient should have the equivalent of the foreign tax. That sum must go to the Exchequer who must receive from the recipient the full tax at the standard rate of 9s. It is the fact that the annual payment is paid out of income that distinguishes this from the case for which the loss provision is required. There is no case for the Amendment and much less for it in the form in which the hon. and learned Member has put it down than might have been the case if he sought to claim that the payer of the annual payment should be entitled to relief for the 3s.
§ Mr. Selwyn Lloyd
I will be quite frank and say that at this time of night I am not carrying the argument any further. Naturally one puts down an Amendment of this sort after taking highly qualified technical advice and I shall have to consult with those who advised me in regard to the Amendment as to the explanation of the right hon. and learned Gentleman. In those circumstances, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause ordered to stand part of the Bill.