§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ Mr. P. Roberts
There is an Amendment down to this Clause which has not been called and therefore I am not going to argue it. I wish to deal with the Clause as it now stands. There seems to be a certain amount of doubt and ambiguity about it. This Clause deals with companies which are director-controlled companies and not liable to Surtax under what I might call the Section 21 procedure.
I first of all wish to deal with the question of an investment company. An investment company pays out all of its income, and the Special Commissioners do not make an apportionment. It seems to me in that case that the company would become liable to E.P.L., and the first question I want to put to the Chancellor of the Exchequer, or whoever is to reply, is that there should be a general direction given to the Special Commissioners that where a company asks that an apportionment shall be made upon it, the Special Commissioners shall do so in order to give the benefit of exemption from E.P.L. 989 My second point is concerned with the trading company which equally pays out all its dividends but cannot be assessed for Surtax. The Special Commissioners have a period of six years before them, which means that such a company will not know whether or not there is to be apportionment. Therefore, as I understand it, this type of controlled company will not, in point of fact, know whether it will be liable or not for E.P.L. for six years, because it will have to wait up to that time before it knows if the Special Commissioners will make an apportionment.
My second question, therefore, is: If a company asks for a ruling by the Special Commissioners at the end of its tax year as to whether they will apportion or not this company, then the Special Commissioners will give an undertaking, and not say, "You must wait for six years before we make up our mind." If a company makes an application to the Special Commissioners to say, "Will you apportion us or not?", I am asking that they shall make a decision, whether it is a vesting company or a trading company. If the Government will give that undertaking, it will help many hundreds of small businesses and one-man businesses which, under this Clause, will be in some doubt as to whether they will be liable to E.P.L. or not, because they will have to wait for the Special Commissioners to decide, and that may take as long as six years.
§ 5.45 p.m.
§ The Parliamentary Secretary to the Ministry of Civil Aviation (Mr. R. Maudling)
This Clause deals with the so-called one-man companies which, in certain circumstances, are treated for Surtax purposes as if they were partnerships. In the case of the one-man investment company, its investment income is automatically apportioned to the members of the company and they are charged for Surtax as if they were partners on that part of its income. So far as any trading income that it may have is concerned, that is apportioned when, in the opinion of the Commissioners, the distribution has not been adequate.
In the case of the trading company, both the trading income and the investment income, if any, is apportioned when the distribution to the members has not been adequate. E.P.L., as the Committee is aware, is not charged on partnerships because partners are liable to Surtax. 990 The purpose of this Clause is really to provide in the case of these companies that either they are treated as companies and taxed as companies, in which case they will be liable to E.P.L., or their income is apportioned for Surtax purposes and the members of the companies are treated as partners and are liable to Surtax. but they will not pay E.P.L. in addition.
The hon. Member for Heeley (Mr. P. Roberts) raised some particular points. So far as the question of the six-year period is concerned, I would certainly be prepared to consider that and find out what in practice would arise. I do not think that in practice any great difficulty need arise in that particular case. So far as the principle of the Clause is concerned, it seems quite clear that there is no alternative either to treating these companies as companies and taxing them throughout as companies, or treating them throughout as partners, and thereby rendering their members liable to Surtax but not to E.P.L.
§ Mr. P. Roberts
I am obliged to my hon. Friend for saying that he will look at this matter. I am not dealing with the merits of the particular Clause; all I am saying is that there will be great difficulty if the Special Commissioners wait for six years before they make up their minds, and I am much obliged to my hon. Friend for saying that he will consider this matter.
§ Sir F. Soskice
I think that there is some substance in what the hon. Member for Heeley (Mr. P. Roberts) has just said. I should have thought that there was a real difficulty in the point which he raised. We get an E.P.L. assessment put on a company, and two, three, four or five years later we get an apportionment on the same company. I hope that the hon. Gentleman will consider that very carefully. Unless I have misread the Clause, I should have thought that the effect may be that we may have two assessments—one for E.P.L. in the first two or three years, and, in a later year, an apportionment which in effect charges the same company to two taxes.
§ Mr. Maudling
That is a point of substance, and we will look into it to see that the liability of double taxation will not in fact arise.
§ Clause ordered to stand part of the Bill.