§ 9.0 p.m.
§ Mr. ErrollI beg to move, in page 110, line 4, to leave out from "Where," to "as," in line 5, and to insert:
on the tenth day of March. nineteen hundred and fifty-two.I understand that the Chair would like this Amendment to be taken along with those standing in my name and those of my hon. Friends dealing with the paragraph covered by lines 18 to 24 of the Schedule. Therefore, with your permission, Mr. Bowles, I will speak to the three Amendments together.The Eleventh Schedule admits of group treatment only for groups which existed on 1st January, 1952. Members may leave a group, but no new member may join or be admitted to a group for the purpose of group treatment except where an entirely new business is commenced. No new groups formed after 1st January, 1952, are to be recognised.
This is not altogether a form of treatment for active business, and it is one which is very difficult to understand. I can only suggest that it arises from an earnest desire on the part of the Inland Revenue to avoid fresh regroupings for the express purpose of reducing liability to Excess Profits Levy, and from that narrow point of view it is quite right that steps should be taken to prevent new 1057 groupings from occurring. But we cannot accept that as an over-riding reason, because it is so essential in these days, when business changes and moves so rapidly, that new groups shall be permitted to be formed wherever there is a clearly seen need for them to do so. Groups must be free to form in the future as well as in the past.
It is recognised that groups may separate and that new and separate companies may form. So, equally, it must be recognised that they should be free to coalesce into larger groups if they so wish. I suggest to the Financial Secretary that the initial apprehension of the Inland Revenue when they drafted this Schedule can easily be taken care of by the powers which will lie to them in Clause 59. That Clause will enable them to take all necessary action to counter any organised evasion.
Furthermore, I think it would be as well to introduce an element of reality into this particular aspect of the matter and to say that companies are not likely to group themselves together or to add members to a particular group solely in order to avoid Excess Profits Levy, particularly when the new member of the club—so to speak—is himself in a decline, because the business losses will be far greater than anything the group would be likely to be able to save in Excess Profits Levy by acquiring the new member. I suggest that we might well have a measure of common sense in this matter and allow new members to be added to an existing group of companies in the same way as a former member may be allowed to peel off after 1st January, 1952 if it should so wish.
The break in continuity for setting off excesses and deficiencies which is provided when a member leaves a group can be repeated when a new member joins a group. This would prove to be a further safeguard to the Revenue. I can suggest further ways whereby the Revenue interest can be safeguarded, but I do not wish to detain the Committee with points of detail. If the Financial Secretary can see his way at least to consider my Amendment at this stage we could, perhaps, discuss the matter further by correspondence, so that he could ensure that there would be no loss to the Revenue and, at the same time, allow the maximum freedom to companies to 1058 coalesce or to split off as is deemed best in their interests
§ The Solicitor-GeneralI feel that I ought to say something about this Amendment, and I can put it quite shortly. My hon. Friend the Member for Altrincham and Sale (Mr. Erroll) seems to think that this part of the Schedule is designed to prevent companies from associating together and the formation of groups. In one sense it does prevent the formation of groups for the purpose of the Excess Profits Levy, but if a company is set up after 1st January, 1952, with share capital provided by a member of the group, that company can be included within the group. That is the one special case.
Apart from that, if a new business, run by a company with an existing business, is acquired after 1st January, 1952, it will not be included in the group for the Excess Profits Levy but will continue to enjoy its own standards, its profits will be taxed separately from those of the other members of the group and it will get any benefit to which it may be entitled in respect of the over-riding limitation.
Consequently, that company which is acquired is not in any way prejudiced for Excess Profits Levy purposes. Indeed, it may gain an advantage compared with the rest of the companies with which it is associated, because its profits will not be merged with those of other members for the purpose of seeing whether the group as a whole is entitled to relief in respect of the over-riding limitation.
I regret to tell my hon. Friend that, without engaging in any correspondence, it is not possible for the Government to accept his proposal for this reason—that the process of the acquisition of the shares of a company with an existing business developed into a very common form of avoidance of the old Excess Profits Tax. Buying a standard by the acquisition of shares in a moribund business, making it a subsidiary within the meaning of the rules and using its deficiencies to reduce the levy chargeable on the excess profits of other members of the group was by no means uncommon, and in our view the best way of preventing a repetition of that is to ensure that the business which is acquired after 1st January, 1952, shall be treated separately, entitled to its own standards and its own reliefs and everything else, but not allowed to merge with 1059 the group for the purposes of a common standard for all those companies. That is a reason which I hope will commend itself to my hon. Friend, and I hope he will withdraw his Amendment.
§ Mr. James H. Hoy (Leith)That has saved a postage stamp.
§ Amendment negatived.
§ The Solicitor-GeneralI beg to move, in page 110, line 15, at the beginning, to insert:
then, subject to the following provisions of this paragraph.Perhaps it will be convenient to discuss at the same time the next Amendment, that in line 17.These Amendments deal with a technical point relating to groups of companies and I think it largely meets a point raised by Amendments standing in the names of many of my hon. Friends, although the wording is a little different. The object of the Amendment is to ensure that group treatment can still be applied to a number of trading companies if we find the position, for instance, where company A has 76 per cent. or 75 per cent. of the shares in company B and B has control over companies C, D and E; and all those companies can be treated as one, although the shareholding of A in the subsidiaries of B will naturally be less than 75 per cent. The Amendments will meet one or two cases where difficulties might have arisen and I think they are effective for that purpose.
§ Sir Patrick Spens (Kensington, South)Let me say a word of thanks to my hon. and learned Friend for having put in this Amendment. It is one of three alternatives which I and my hon. Friends put forward to deal with what is a good deal more than a technical point so far as business groups are concerned, because the provision in the Schedule that every single company in a group had to have 75 per cent. of a company below it did, in fact, cut out a great number of operative groups, because, of course, a company can well be a subsidiary of another if it has more than 51 per cent. and less than 75 per cent. That was really a practical difficulty which met a number of important groups, and in these circumstances, with great difficulty, we suggested three alternatives.
1060 The alternative which the Government have chosen by this Amendment is exactly the same, except for wording, as my proposed Amendment, and that of my hon. Friends, in page 112, line 12. Except for purely verbal differences, it is exactly the same. It does meet the difficulty, and we are very grateful for the consideration that has been given to this point by the Government, and to the Amendment moved by my hon. and learned Friend.
§ Amendment agreed to.
§
Further Amendments made: In page 110, line 17, at end, insert:
(2) Where at the beginning of the period of charge to the excess profits levy the conditions specified in paragraphs (a) to (d) of sub-paragraph (1) of this paragraph would have been fulfilled as respects any two or more bodies corporate but for the fact that one of those bodies corporate of which the others were subsidiaries (in this sub-paragraph referred to as "the intermediate owner") was itself a subsidiary of another body corporate resident in the United Kingdom (in this subparagraph referred to as "the ultimate owner") then, if the subsidiaries of the intermediate owner were not also subsidiaries of the ultimate owner, and the ultimate owner and the intermediate owner jointly so elect before the first day of January, nineteen hundred and fifty-four—
§ In line 18, leave out "Provided that," and insert "(3)."—[The Solicitor-General.]
§ The Solicitor-GeneralI beg to move, in page 112, to leave out lines 27 to 34, and to insert:
This and the next five Amendments are consequential Amendments flowing from the change in the standard period and the change in the amount of the minimum standard, and a group of companies is given the same options as a single company is given in the main Clauses relating to the Excess Profits Levy.
- (a) where the trade or business of any of the members of a group commenced before the first day of January nineteen hundred and forty-seven; or
- (b) if the principal member so elects, where that one of the trades or businesses of the members of a group which commenced the earliest commenced after the first day of January, nineteen hundred and forty-seven, but before the first day of January, nineteen hundred and forty-nine; or
- (c) if the principal member so elects, where that one of the trades or businesses of the members of a group which commenced the earliest commenced after the first day of January, nineteen hundred and forty-seven but before the first day of January, nineteen hundred and fifty and the condition specified in the proviso to subsection (5) of section thirty-three of this Act would be fulfilled, as
1061 respects the trades or businesses of all the members of the group, if they were one trade or business of one body corporate.
§ Amendment agreed to.
§
Further Amendments made: In page 112, line 45, leave out "July, nineteen-hundred and forty-eight," and insert:
January, nineteen hundred and forty-nine.
§
In page 113, line 2, leave out from "commenced," to "and" in line 3, and insert:
on or before the first day of January, nineteen hundred and forty-seven.
§ In line 4, leave out "paragraph (b) of."
§ In line 14, leave out "two," and insert "five."
§ In line 22, leave out "two," and insert "five."—[The Solicitor-General.]
§ Mr. ErrollI beg to move, in page 113, line 52, at the end, to insert:
(7) Where a subsidiary as defined in paragraph 5 of this Schedule, whether or not it was a member of a group as defined in paragraph 1 of this Schedule, was at any time before the period of charge a subsidiary of a body corporate which is a principal member of a group and carried on a trade or business during the standard period and its trade or business is transferred to another body corporate which is a member of the group, the adjustments shall be made to the standard profits which are required to be made by paragraphs 1, 2 or 3 of the Tenth Schedule to this Act, but so long as the subsidiary is a subsidiary of the principal member of the group the excess or deficiency of the subsidiary or if there are no profits a deficiency equal to its standard profits shall be aggregated with the excess or deficiency of the principal member.This Amendment deals with the position of subsidiary companies which may be transferred from ownership by one member of a group to another member of the group. It seeks to remedy a minor but important injustice to the profits standards of such companies that, without this Amendment, will be denied the proper basis of the standards to which they would otherwise be entitled; either they or the principal company to which they are transferred.1062 9.15 p.m.
There are not many cases which are likely to arise, but where they do arise it is important to see that no undue restriction is placed upon the transfer of subsidiaries from one company to another of a group of companies. These changes are often necessitated through the desire to integrate management, or where a company may need to move its principal place of business from one country to another, and one does not wish, through the incidents of E.P.L., in any way to restrict the natural evolution and growth of businesses. My Amendment seeks to remove one small injustice in this levy.
§ The Solicitor-GeneralI must confess that when I read the Amendment I did not understand it in the least. I have read it several times, and I am still a little uncertain as to what it means. I am grateful to my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) for explaining the object which lies behind the Amendment.
I am by no means certain that the case which he has put is not adequately covered under the Schedule as it now stands. He is dealing with the case where a company which is already a subsidiary of a member of a group is that transferred by that member to become a subsidiary of another member of the same group. I am under the impression that would not affect its group treatment, but I will look into the matter. In those circumstances, I ask my hon. Friend to withdraw his Amendment.
§ Mr. ErrollI beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Amendments made: In page 114, in line 1, leave out sub-paragraphs (1) to (4), and insert:
- (1) Subject to the provisions of sub-paragraphs (4) and (5) of this paragraph, the composite figure for the group referred to in subparagraph (1) of the last preceding paragraph shall be the sum arrived at by—
- (a) aggregating the profits and losses for the standard years of the members of the group whose trades or businesses commenced before the end of the second standard year; and
- (b) reducing the result so that it bears to the full amount thereof the same proportion as one year bears to two years less so much, if any, of the first of the standard years as preceded the commencement of that one of the trades or businesses of the members of the group which commenced the earliest.
- (2) The share of each member of the group in the composite figure for the group—
- (a) shall, if its trade or business commenced before the end of the second standard year and it had profits for the standard years, be the sum which bears to the composite figure for the group the same proportion as its profits for the standard years bear to the total of the profits for the standard years of all the members of the group which had profits for the standard years; and
- (b) shall, if its trade or business commenced after the end of the second standard year or if it had no profits or a loss for the standard years, be nil.
- (3) Where the standard profits for a full year of a member of the group fall to be determined under this paragraph, they shall be determined by applying the provisions of subsections (2) and (3) of section thirty-three of this Act—
- (a) as if its share of the composite figure for the group were the amount arrived at under subsection (1) of that section;
- (b) as if (in a case where that one of the trades or businesses of the members of the group which commenced earliest commenced after the beginning of the first of the standard years) there were substituted, in the said subsection (2), for the reference to the beginning of the first of the standard years, a reference to the commencement of that trade or business, and for the reference to two years, a reference to two years less so much of the first of the standard years as preceded the commencement of that trade or business;
- (c) as if, in the said subsection (3), the reference to the relevant date as defined in subsection (6) of that section were a reference to the relevant date as defined in sub-paragraph (7) of this paragraph.
- (4) Where the trade or business of any of the members of the group commenced on or before the first day of January, nineteen hundred and forty-seven, the principal member may elect either—
- (a) that the aggregated profits and losses referred to in paragraph (a) of sub-paragraph (1) of this paragraph shall be computed as if the aggregated profits and losses of the members of the group for one of the two standard years (to be specified in the election) had been an amount of profit equal to eight per cent. of the average amount of the aggregate paid-up share capital of the members of the group in that year, share capital of any member of the group other than the principal member which was beneficially owned by any member of the group being left out of account; or
- (b) that the composite figure for the group shall be ten per cent. of the amount of the aggregate paid-up share capital of the members of the group at the end of the year nineteen hundred and forty-six or the year nineteen hundred and fifty-one (as may be specified in the election), share capital of any member of the group other than the principal member which was beneficially owned by any member of the group being left out of account; or
- (c) that the composite figure for the group shall be an amount equal to eight per cent. of the amount by which at the end of the year nineteen hundred and forty-six or the year nineteen hundred and fifty-one (as may be specified in the election) the value of the aggregate assets of the members of the group, computed in accordance with the provisions of the Schedule to this Act (Excess Profits Levy: computation of value of assets, etc., for purposes of capital standard) but leaving out of account the value of any share capital of a member which is beneficially owned by another member, exceeds the aggregate amount of their liabilities so computed;
§ Provided that where an election is made under paragraph (b) or paragraph (c) of this sub-paragraph,—
- (i) subsection (2) of section thirty-three of this Act, as applied by sub-paragraph (3) of this paragraph, shall not apply to sums received or paid before the end of the year specified in that election; and
- (ii) sub-paragraph (2) of this paragraph shall have effect as if the references to the end of the second standard year were references to the end of the first chargeable accounting period of the principal member and the references to profits for the standard years were references to profits for that chargeable accounting period.
§ (5) Where the condition specified in the proviso to subsection (5) of section thirty-three of this Act is fulfilled as respect one or more members of the group but no election can be made under paragraph (c) of sub-paragraph (1) of paragraph 8 of this Schedule, and no election is made under the last preceding subparagraph, the principal member may elect that the composite figure for the group, and the share of each member in that figure shall be calculated as if the profits or losses of the first-mentioned member or members for the years nineteen hundred and forty-nine and nineteen hundred and fifty were its or their profits or losses for the standard years; and where an election is made under this subparagraph, then—
- (a) subsection (2) of section thirty-three of this Act, as applied by sub-paragraph (3) of this paragraph, shall have effect in relation to the said member or members as if the references therein to the first and the second of the standard years were respectively references to the year nineteen hundred and forty-nine and nineteen hundred and fifty; and
- (b) notwithstanding anything in this paragraph, the relevant date referred to in subsection (3) of the said section thirty-three shall, in relation to the said member or members, be whichever of the following dates is the later, that is to say the first day of July, nineteen hundred and forty-nine or the commencement of the trade or business of that member or, as the case may be, the commencement of that one of the trades or businesses of those members which commenced the earliest.
§ (6) The standard years for all the members of the group shall be the years nineteen hundred and forty-seven and nineteen hundred and forty-eight, the years nineteen hundred and forty-seven and nineteen hundred and forty-nine or the years nineteen hundred and forty-eight and nineteen hundred and forty-nine, as the principal member may elect:
§ Provided that—
- (a) where that one of the trades or businesses of the members of the group which commenced the earliest commenced after the first day of January, nineteen hundred and forty-seven but before the first day of January nineteen hundred and forty-eight the principal member may elect that the standard years for all the members of the group shall be the year beginning with the commencement of the said trade or business and the subsequent year;
- (b) where that one of the trades or businesses of the members of the group which commenced the earliest commenced after the first day of January, nineteen hundred and forty-seven, and either no election is made under paragraph (a) of this proviso or the said trade or business commenced on or after the first day of January, nineteen hundred and forty-eight, the standard years for all the members of the group shall be the years nineteen hundred and forty-eight and nineteen hundred and forty-nine;
- (c) where an election is made under paragraph (c) of sub-paragraph (1) of paragraph 8 of this Schedule, the standard years for all the members of the group shall be the years nineteen hundred and forty-nine and nineteen hundred and fifty.
§ (7) The relevant date referred to in subparagraph (3) of this paragraph is—
- (a) where an election is made under paragraph (b) or paragraph (c) of sub-paragraph (4) of this paragraph, the first day of January immediately following the year specified in the election;
- (b) where an election is made under paragraph (a) of the last preceding sub-paragraph, the date falling six months after the date of the commencement of the trade or business referred to therein;
- (c) where no such election as aforesaid is made and that one of the trades or businesses of the members of the group which commenced the earliest commenced on or after the first day of January, nineteen hundred and forty-eight, whichever of following two dates is the later, that is to say, the first day of July, ninteen hundred and forty-eight, or the date of the commencement of that trade or;
§
In page 115, line 13, leave out "the last preceding sub-paragraph," and insert:
sub-paragraph (4) of this paragraph.
§ In line 14, leave out "reference," and insert "references."
§ In line 15, leave out "a reference," and insert "references."
§
In line 34, leave out sub-paragraph (7), and insert:
(7) In this paragraph "profits for the standard years" and "loss for the standard years" mean, in relation to a member of the group the trade or business of which commenced after the beginning of the first standard year, profits or a loss for so much of the standard year as follows the commencement of its trade or business.—[The Solicitor-General.]
§ The Solicitor-GeneralI beg to move, in page 115, line 38, at the end, to insert:
10. Section (Addition to standard profits in respect of borrowed money) of this Act shall apply in relation to a member of a group as if references to borrowed money did not include references to money borrowed from a member of the group:Provided that if before the end of a chargeable accounting period, the nexus has been severed between two members of a group, this paragraph shall not apply to them in relation to that period.11. Sections (Addition to standard profits in respect of borrowed money), (Bodies corporate holding shares in other bodies corporate) and (Computation of profits for purposes of the excess profits levy in the case of concerns producing certain metals, etc.) of this Act shall apply in relation to a member of a group as if—
- (a) references to profits for the standard years were references to its share in the composite figure referred to in paragraph 8 of this Schedule;
- (b) references to an election under paragraph (a), (b) or (c) of subsection (4) of section thirty-three of this Act included respectively a reference to an election under paragraph (a), (b) or (c) of sub-paragraph (4) of paragraph 9 of this Schedule; and
- (c) references to an election under section thirty-five of this Act included a reference to an election under sub-paragraph (3) of paragraph 8 of this Schedule.
§ Sir F. SoskiceI should like a word of explanation about this Amendment. The previous Amendments we had been dealing with, as the Solicitor-General has said, really reproduced, as I understand it, for purposes of group treatment the alternative basis of assessing standard profits which the Chancellor of the Exchequer moved at an ealier stage of our discussion. This is a new subsection which deals with borrowed money in relation to group companies and it does not quite fall within the category of a purely consequential Amendment. I suggest that the 1067 Committee is entitled to some measure of explanation from the Solicitor-General.
§ The Solicitor-GeneralI shall be only too glad to give the Committee an explanation. The Amendment makes provision for treating group companies in precisely the same way as single companies in relation to borrowed money. It is consequential in that it follows the same rules as those for a single company, except that inter-group borrowings are ignored and only money borrowed from outside sources qualifies for the allowance.
§ Sir F. SoskiceI am obliged to the hon. and learned Gentleman. I think it was not strictly correct to let us suppose that the Amendment was purely consequential because it makes a change in that inter-group borrowings are to be disregarded and that for the purposes of the group we are to look at outside borrowings. That is not quite consequential.
§ The Solicitor-GeneralI did not wish to mislead the Committee. I meant that the Amendment followed the main principles of the Bill. There are slight drafting alterations in other Amendments here, but they are of a very minor character and are intended to bring group companies in line with the rest of the Bill concerning single companies.
§ Amendment agreed to.
§ Further Amendments made: In page 116, line 32, leave out "or."
§ In line 33, after "(b)," insert "or paragraph (c)."
§
In line 36, leave out "or," and insert:
paragraph (b) or paragraph (c).
§ In line 37, leave out "paragraph (b)."
§
In page 118, line 29, after "shall," insert:
subject to the following provisions of this paragraph."—[ The Solicitor-General.]
§ The Solicitor-GeneralI beg to move, in page 118, line 34, at the end, to insert:
(2) Where one or more but not all members of the group are such bodies as is mentioned in subsection (2) of the said section thirty-seven, such relief and adjustments (if any) shall be given or made under that section as is necessary to secure that the aggregate amount payable by all the members by way of the 1068 excess profits levy is reduced to, but not below, the sum of the following amounts—The Amendment deals with a point which cannot perhaps be described as consequential. It is concerned with the application of the over-riding limitation. The only feature of it to which I wish to draw attention is that, if one or more members of the group have overseas businesses and the others have not, the rate of 10 per cent. is applied to the profits of the overseas members and the rate of 15 per cent. is applied to the others for the purposes of finding out whether the over-riding limitation applies to the group as a whole.
- (a) ten per cent. of the profits of the first-mentioned members for the whole period mentioned in subsection (1) of the said section thirty-seven; and
- (b) fifteen per cent. of the profits of the other members for the said period.
§ Amendment agreed to.
§ Further Amendments made: In line 35, leave out "Provided that," and insert "(3)."
§ In line 43, leave out "not exceed," and insert "be equal to."—[The Solicitor-General.]
§ Schedule, as amended, agreed to.