§ Mr. Manningham-Buller
I beg to move, in page 29, line 6, at the end, to add:If the Commissioners of Inland Revenue are satisfied that no additional tax would fall to be paid or allowed if this and the preceding section were applied in relation to the recovery, they may notify the appropriate person that this and the preceding section shall not apply to the recovery.It may be convenient to the Committee to consider this Amendment together with the second Amendment which we have on the Order Paper namely, in page 29, line 6, at end, add:(6) This and the preceding section shall apply to recoveries made on or before the thirty-first day of March, nineteen hundred and fifty-two.They both raise points of some importance and I hope that the right hon. and learned Gentleman will be able to meet me with regard to both of them.
957 Both Clause 32 and Clause 31 deal with the recovery of debts and in neither case is there a time limit The end of the Excess Profits Tax is five years in the past, and I suggest that there must be some finality about the provisions of the Excess Profits Tax. As the Clauses now stand it means that whatever enemy debts are recovered there will have to be a re-opening of the provisions of the Excess Profits Tax. I suggest that cannot be allowed to go on indefinitely. I understand that the provisions for deferred repairs under the Excess Profits Tax legislation will expire on 31st March, 1952, and I suggest that this is a convenient date to take as a date of finality
With regard to the first Amendment, obviously where the amount recovered of enemy debts is substantial it is well worth while re-opening the Excess Profits Tax computation. But where the amount recovered is small it may well be that it is not worth while doing anything of the sort. The first Amendment is merely to allow for the non re-opening of the Excess Profits Tax provisions where the amount recovered does not warrant the expense of so doing. The wording of the first Amendment is modelled on Section 42 of the Finance Act, 1948, which I think has been interpreted to mean where there is no material amount involved.
§ The Solicitor-General
I feel that the Committee ought not to accept either of these Amendments. With regard to the first one, it is perfectly true that in Section 42 of the Finance Act, 1948, there is a not dissimilar position which in effect enables the inspectorate to disregard small amounts, but that is not a parallel case because it is dealing with expenses. If there is a disregard of expenses on one side of the column it is because there would be a counter balancing of relief obtainable under rule 9 of Schedule E. In practice I do not think there would be any difficulty in all cases of recovery. There will be a difference made in the re-writing of the accounts. The sum of £100 is bound to make a difference in re-writing of the accounts, and so is £50.
But in practice, supposing the amount was quite negligible, the inspector of taxes would be acting within the discretion invested in him if he disregarded that amount or allowed the trader to treat that amount as a recovery in the actual year in which the recovery was obtained. 958 So that for practical purposes de minimis costs can be provided for in the existing discretion and anything other would of arithmetical necessity be bound to make a difference in the re-writing of the war-time accounts of the trader in question. Therefore I hope the Committee will agree that the Amendment ought not to be accepted. I agree it is not a fundamental change but the small cases could be dealt with as de minimis cases now and the amounts allowed to be treated as recoveries in the year actually recovered.
I must confess that we think that the time limit suggested in the second Amendment is premature. It is true that the period for deferred repairs under the Excess Profits Tax legislation will expire in March, 1952, and that is the reason why the hon. and learned Gentleman chose this date. On the other hand, a great many Excess Profits Tax problems are still outstanding. They are bound to be outstanding. This question of claims recoveries is bound to remain open for some time. The Peace Treaties and so on have not been brought into operation. Indeed they have not been made with some ex-enemy territories. Whilst that is the case, the result must be that many claims against ex-enemy debtors cannot be finally disposed of.
Therefore, we think it is premature to try to set a limit. By way of analogy, I remind the Committee that Excess Profits Tax under the legislation in force in the First World War was not brought to a close until 1926, some eight years afterwards. Conditions now are even more difficult than they were then. It is taking longer to settle these outstanding matters now, because so many international treaties are still not negotiated or brought into operation, than it was after the First World War. For these reasons, my answer to the second proposal is that it is premature to try to set a term now for disposing of these matters.
§ Mr. Manningham-Buller
The Solicitor-General has made a useful and valuable statement. In view of the reasons advanced by him, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Motion made, and Question proposed, "That the Clause stand part of the Bill."959
§ Mr. Maudling
I should like to ask two questions. First, is it a fact that if, as a result of the operation of this Clause, the E.P.T. liability for, say, 1940–41 of a company is declared to have been larger than in fact was paid—in other words, it becomes liable retrospectively—does not that mean that the capital employed in the business from that year onwards becomes smaller than it would have been if the full amount of tax had been paid at the time? If the capital employed in the business from 1940 onwards is now deemed, as a result of an increased tax deduction, to be smaller than it was treated as being in tax computations made currently, does not that mean that every subsequent tax computation will have to be done again, because E.P.T. is based on the capital employed in the business? Does not that mean that this matter is more complicated than was suggested?
The Solicitor-General referred to delays in the recovery of money from ex-enemy territories. Has he also in mind the difficulties of people who obtain satisfaction in a foreign currency, or in the bonds of a foreign firm, who find that that currency is not convertible, or the proceeds of those bonds, if they sell them, are not easily transferable to this country?
§ The Solicitor-General
On the question of the capital employed in a business for Excess Profits Tax computation and the working out of the average, the writing back of a debt subsequently recovered could not possibly affect the amount of capital employed in the business for the purpose of the computation of the relevant fraction, as it is defined in the Act of 1939. The writing back of a debt simply means that an extra profit is deemed to have been made in that particular period for Excess Profits Tax purposes. That extra profit does not of itself affect the amount of capital which is de facto employed in the business, within the meaning of the Excess Profits Tax code.
With regard to the recovery of debts in foreign currencies which may be frozen, the answer is to be found in the definition we have given of the word "recovery." We have defined it as meaning:… the obtaining of anything of value.Before one can be said to have got a recovery, it must be possible to say that one 960 has got something of value. Debts are frozen in foreign currencies under a whole variety of circumstances. Sometimes people would say that the frozen debt is worth nothing because a person knows that he will never get it. Sometimes a person knows that the frozen debt is worth almost its full value because he is almost sure to get it next year, or he can get it if he makes an application to be paid. We have tried to adjust the recovery to the actual value of the debt in the foreign frozen currency. We hope that this will work out all right. We have given it a great deal of thought and we think that it should bring about a fair result.
§ Mr. Maudling
On the first point, is it the Solicitor-General's argument that although a company is deemed to have earned a greater profit in 1941 than has subsequently been found to be the case, they are not deemed to have employed that greater profit which they are supposed to have earned as part of the working capital of the business?
§ Sir P. Bennett
I should like to emphasise the point which has been made. There is a growing desire on the part of industrialists to get many of the old accounts closed. I hope that the Solicitor-General and the Chancellor will not say that it does not much matter if they have to wait for a year or two. The time which is occupied and the strain and stress placed upon staffs is becoming very great. The accountancy profession is very much overworked and anything we can do to clear up these matters would be of assistance. I hope that we shall take a little risk instead of waiting hoping that something may turn up.
§ The Solicitor-General
I assure the hon. Gentleman that his desire to see these matters cleared up is cordially shared by the Inland Revenue authorities. They will make every possible endeavour, in co-operation with traders, to see that that result is brought about. A large part of this question of writing down accounts is a matter for mutual arrangement. With regard to Excess Profits Tax, it is possible to conceive a case—indeed, they have been before the courts—in which there is evidence that a written down debt, or a debt almost entirely written off, is in fact used as capital in the business, because credit is obtained against it, or something of that sort. If 961 there were evidence of that kind of employment of a debt as capital in the business, the capital employed would be increased, with a consequent alteration of the relevant fraction. It depends upon the details of a particular case.
§ Clause ordered to stand part of the Bill.