§ Mr. Boyd-Carpenter
I beg to move, in page 50, line 8, at the end, to insert:(b) the amount by which the value of the assets of the body corporate exceeds the amount of its liabilities; orThis is consequential on my right hon. Friend's statement on Clause 33 on the alternative standard.
§ Amendment agreed to.
§ Motion made, and Question proposed. "That the Clause, as amended, stand part of the Bill."
§ Mr. G. R. Mitchison (Kettering)
I should like to make one or two inquiries on this Clause. Subsection (1) refers to apportionment of the trade or business of a body corporate as between the trade or business carried on within the United Kingdom and the part carried on outside. I should like to know on what sort of basis that apportionment will be made. It is obviously a matter of very great importance.
The kind of thing I have in mind is that we might have, for instance, a commercial company effecting purchases and sales with a headquarters outside the United Kingdom and a branch or a representation of some sort within the United Kingdom. What is the footing upon which the headquarters' expenses—overhead expenses, as they are often called—of that company are to be apportioned? I have no doubt that there is some practice in the matter.
Again, there will be cases of foreign banks trading in this country. I should have thought that it would have been advisable to have it made known as soon as possible what the Chancellor has in 945 mind by way of apportionment in that type of case. There are many others. For instance, there is the case of a shipping company. I can imagine the same sort of point arising there.
The next point is that these apportionments are subject to what appears to be a discretionary right to give directions. This rests with the Commissioners as they are called, in the first place, or, on appeal, with the Special Commissioners. That discretionary right to give directions is contingent on there being special circumstances and is dealt with in line 24, page 50. I should like to know what kind of special circumstances are supposed to exist which will lead to a direction of that sort.
The phrase is completely vague so far as I can see. I would suggest that it is too sweeping, and there ought to be introduced, at some stage or another, some kind of definition or indication as to what sort of special circumstances they are or can be. One can have all kinds of cases where it might be said that this, that, or the other was a concatenation of things constituting special circumstances. As the Clause is drafted, it appears to be left to the Commissioners themselves not only to make a direction, but, as a preliminary matter, to consider whether there are or are not special circumstances.
I should next like to ask this question. I have great respect for the trouble that the Commissioners always take in dealing with these matters and for their experience in them, but they are very different bodies and operate in different parts of the country. One of the factors in their choice is that they have local knowledge, and are not the type of body of which one would expect that such general responsibilities as this Clause suggests would be imposed on them.
I agree that is recognised to some extent by an appeal to the Special Commissioners, but the Chancellor will have it in mind that this is a discretionary power to direct coupled with a power to decide what are or are not special circumstances. If that is so, then the burden is particularly heavy, in the first instance, on the Commissioners and, on appeal, on the Special Commissioners, because I imagine that in a case of that sort the courts would be exceedingly slow to interfere with the exercise of the Commissioners' discretion. In short, a very complicated question 946 appears to be left with remarkably little guidance as to what are special circumstances and also, in my opinion, as to the basis of apportionment.
There is another point I want to ask about. In page 51, lines 7 to 9, we come to a person who comes to be taken as an agent because he acts regularly as a broker for a body corporate, and a broker includes a general commission agent. I suppose that this Clause is intended to refer to cases where there are dealings in more or less established markets, and established brokers may in the ordinary course of business habitually act for a foreign company. Surely it is not intended to include them as agents. If that is all that is intended, I wonder if it is really necessary to make this provision, because they then appear to be brokers acting in one deal after another, and that could hardly constitute them agents.
I suppose that the way in which they are paid has much to do with it. There are brokers, I believe, who act for both parties and the terms of remuneration differ a good deal according to the customs of the markets. I understand that kind of case, but is there any more in it than that, because if that is all that is meant then I fail to see the purpose of putting in the provision? If something more is intended I should very much like to know about it.
Those are the main questions I wanted to ask, and I ask them not only with a view to finding out what is in the Chancellor's mind in these matters, but also by way of suggesting to him that the Clause as drawn is not too clear; and particularly on the earlier points about special circumstances—the directions which may be given and the basis of apportionment. I think that the discretion in the hands of the Commissioners is too wide.
§ Mr. Charles Fletcher-Cooke (Darwen)
I want to put a question to the Chancellor. Do the profits that are brought into charge by this Clause include in their computation any amount of Excess Profits Levy that these foreign companies may have to pay in their countries? I know that there has been great mitigation on this question of double taxation, but I am under the impression that that has 947 been related largely to Income Tax and not to the Profits Tax or to the Excess Profits Levy.
In another place, in a recent case, a decision was come to under the Finance Act, 1940, which surprised everybody very much. It concerned a large amount of Excess Profits Levy imposed in the Republic of Eire, and it was not considered deductable as expenses for the purpose of computating the Excess Profits Levy in this country. What is most significant about that decision is that in their speeches their Lordships said quite clearly that it looked as though Parliament, when passing the Finance Act (No. 2) 1939 and the Finance Act, 1940, created the impression that these foreign excess profits levies were, in fact, deductable expenses; that there had been some sort of an assurance by the then Chancellor of the Exchequer that was so; but in the event it has proved to be wrong.
If we are to encourage foreign companies to trade with this country—and that must be the desire of all of us—as far as possible we should see that their income is not subjected twice to these very high levies of taxation. I hope it will be possible, if not now at a later stage, to see whether, when Excess Profits Levy has already been paid in the country of origin, these companies will not again have to pay here, too.
§ Mr. Boyd-Carpenter
The hon. and learned Member for Kettering (Mr. Mitchison) asked, in substance, three questions. The first was as to the basis of apportionment. The best way I can answer that is by referring him to the lines which immediately follow those which he quoted, from line 26, on page 50. They read that the Commissioners shall applythe proportion which the profits of the trade or business to which this Part of this Act applies bears to the total profits of the body corporate.The attempt is made in making these computations to treat them as being relative to the figures applied to the whole transactions of the overseas company.
Then the hon. and learned Gentleman asked me what we contemplated by "special circumstances." He will appreciate that it is not possible to give a comprehensive definition. It is of the essence of 948 such a provision that there should be a little flexibility. The kind of thing is this: a state of affairs in which a very large proportion of the assets concerned was located in the United Kingdom; or in which all the profits made in the United Kingdom were remitted overseas. Those are types of special circumstance, but it is necessary to have a degree of flexibility.
Then he asked a third question about the position of a broker acting as an agent for a body corporate. What is desired is to make it quite certain that the ordinary professional broker acting from time to time on behalf of an overseas company shall not be treated as an agent for this purpose. It may be that the hon. and learned Gentleman is right that the difficulty might not arise in any event, but it is probably safer to make quite sure that people carrying on their ordinary profession do not find themselves mulcted in having to pay somebody else's tax.
My hon. Friend the Member for Darwen (Mr. Fletcher-Cooke) raised a rather specialised point in regard to the excess profits taxes levied in other countries. The general answer to him must be based on the general proposition as to the proportion which I mentioned a moment ago. It is intended that under Clause 60, which deals with credit for foreign taxes, allowance shall be made for such taxes when paid. The Irish case is very much in our minds.
§ Mr. Eric Fletcher (Islington, East)
I do not think we can agree that the Financial Secretary has answered the questions put to him. Will he be good enough to look again at the first part of Clause 45? My hon. and learned Friend the Member for Kettering (Mr. Mitchison) asked how this apportionment is to be made. If the Financial Secretary will look at the Clause he will see that it is only with regard to apportionments mentioned in subsection (1, d) that the Commissioners have to make the apportionments, by applying the proportion which the profits of the trade or business bear to the total profits made by the body corporate. On that we are all agreed.
In addition to that, we observe that apportionments have to be made of the paid-up share capital, sums received in cash and sums paid by way of repayment of share capital. All those have to be apportioned under the Clause and construed as references to such part as may 949 be properly apportionable of the trade or business of the body corporate carried on in the United Kingdom.
On what principle are they to be apportioned? Presumably on a principle different from the principle which is to apply to the apportionment mentioned in paragraph (d). I imagine that if the apportionments of (a) (b) and (c) were to be made on the same principle, Clause 45 would have been differently framed and the Commissioners would have been directed to apply the same mathematical tests for all purposes. I hope that the Solicitor-General will agree with me that with regard to apportionments under (a) (b) and (c) the method laid down for the apportionment under paragraph (d) must be excluded. I take it he would agree that that is the correct legal interpretation of Clause 45 (1).
If I am right in that, it follows that some other and quite different basis must be adopted for the apportionments under (a) (b) and (c). The Committee are entitled to know what that other basis is. As matters stand, they are very unsatisfactory. We are dealing with companies not resident in the United Kingdom, some part of whose business is carried on in this country. It may be a small part, a half, or a very large part. Under the Clause, the companies are made liable to Excess Profits Levy. Somebody has to do a complicated sum. We are told the basis under which that is to be done in paragraph (d) but not in paragraphs (a) (b) and (c). I hope that the Solicitor-General or the Financial Secretary will give us a clear answer before we pass on.
I have one other question to ask on the Clause which I think is material, and which I think the Solicitor-General will agree will call for Amendment before the Report stage. It will be seen that subsections (3) and (4) are designed to enable the Revenue to assess Excess Profits Levy, not on the company but on the agent who happens to be resident in the United Kingdom. Subsection (4) says:Any person who has been charged under subsection (2) of this section in respect of any body corporate not ordinarily resident in the United Kingdom may retain, out of money coining into his hands on behalf of that body corporate, so much thereof from time to time as is sufficient to pay the tax charged, and shall be indemnified for all such payments made in pursuance of that subsection.950 By the time mentioned, it may be too late. I hope that the Financial Secretary will deal with this point.
Do those words mean that the person who is liable to be charged may retain sufficient? Why are the opening words of paragraph (4) limited to "any person who has been charged"? In practice, if any person finds himself in the position of agent for a company resident overseas in circumstances in which the agent is liable to pay Excess Profits Levy, he will probably want of his own accord and for his own benefit to retain in his own hands sufficient of the company's money to satisfy any subsequent charge against him for Excess Profits Levy. The last subsection is not good enough for his protection because it proposes to wait until after he has been charged.
Surely it is necessary for such a person to be able to retain whatever funds he may think necessary to meet Excess Profits Levy which will be against the company and which will be a charge levied in his name. I hope that the provisions of the Clause will be made abundantly clear, so that a person in that position does not have to wait until there is an assessment against him before he can retain sufficient to meet the levy, but may be able to hold it against the contingency that he will become personally liable for the Excess Profits Levy on the company.
§ 4.0 p.m.
§ Mr. Boyd-Carpenter
In reply to the point raised by the hon. Gentleman the Member for Islington, East (Mr. E. Fletcher), we will look again at the drafting. The general intention is perfectly clear, as I explained to the Committee a few moments ago, namely, that the various computations shall be made so as to preserve the proportion between the figures relevant to the transactions of the United Kingdom branch of the Corporation as a whole. I agree that on the drafting it looks as if there may be something in what the hon. Gentleman says as to an apparent differentiation, but that is not the intention.
The second point raised by the hon. Gentleman was the position of the agent who, as he said, is not entitled to retain the money until he has been charged with the tax. One appreciates that difficulties may arise, but it would be a serious thing to give to the agent a general lien to retain moneys when no tax had been 951 levied upon them. In practice, it might well be the case that, if he is charged in respect of one lot, he can retain the next series of payments. We have noted the point and perhaps it will be possible to devise some means of meeting it without going, as I think the hon. Gentleman tended to go, too far in the opposite direction.
§ Question put, and agreed to.
§ Clause, as amended, ordered to stand part of the Bill.
§ Clause 46 ordered to stand part of the Bill.