Clause 57.—(PARTNERSHIPS.) (Hansard, 17 June 1952)

§ Mr. Maudling

I beg to move, in page 65, line 8, at the end, to insert: (2) Where, for the purpose of ascertaining a body corporate's liability to the excess profits levy for any chargeable accounting period, its share in the profits or losses of such a business as aforesaid falls to be determined in calculating its profits or loss for the standard years, then, if at any time before the end of the chargeable accounting period there has been an alteration in its share in the profits or losses of the business—

(a) any sum paid or received in cash by the body corporate in respect of the alteration shall be treated as having been paid by it in cash by way of repayment of its share capital or, as the case may be, received by it in cash in respect of an issue of its share capital; and
(b)its profits or loss for the standard years shall be computed (except for the purpose of ascertaining undistributed profits or over-distributions of profits) as if throughout the standard years it had had the same share (if any) in the profits or losses of the trade or business as it had during the chargeable accounting period.

References in this subsection to an alteration in a body corporate's share in the profits or losses of a trade or business include a reference to the acquisition or disposal of its share; and the reference in paragraph (6) of this subsection to the share in the profits or losses of the trade or business which a body corporate had during a chargeable accounting period shall be construed, where that share was altered during that period, as a reference to its average share during that period in the said profits or losses. The purpose of this Amendment is to carry out an undertaking which I gave on behalf of my right hon. Friend to my hon. and gallant Friend the Member for Renfrew, East (Major Guy Lloyd) in Committee. The Clause as it now stands deals with the position where a partnership is carrying on a business which is liable to E.P.L. and where one of the partners is a body corporate. The individual partners are, of course, not liable to E.P.L., whereas the corporate partner is, and it is laid down that the profit or loss of the corporate body for E.P.L. purposes shall be its share of its total profit or loss of the business carried on under the partnership.

1008 It was pointed out earlier by my hon. and gallant Friend that provision had not been made for circumstances which might arise when between the standard and the chargeable period there has been a change in the balance of the partnership. For example, the corporate partner might have taken over from the other partners a larger share of the business, and in those circumstances, quite obviously, unfairness might arise.

Therefore, we have sought by this Amendment to cover such a situation as this where there has been a change in the division of the share of profit between the various partners by providing that the proportion of the partnership profits in the standard years is to be adjusted so as to coincide with the altered arrangements which may be in force in the chargeable period. In other words, if the company owns three-quarters of the business in the chargeable period, it shall be deemed to have owned it in the standard period.

This calls for a consequential Amendment because sums of money may have passed as part of this arrangement. Therefore, it is provided that any cash paid out by the company as part of this change in the division of the profits of the business or any cash received shall be treated for E.P.L. purposes as cash paid out by way of repayment of share capital or as cash received in respect of an issue of share capital. I think that if this Amendment is accepted by the Committee it will ensure in this rare type of case, should it arise, that justice will be done the body corporate which is a partner.