HC Deb 01 July 1957 vol 572 cc699-702
Mr. Powell

I beg to move, in page 43, line 28, to leave out "received by the Corporation which" and to insert: grants or loans which under subsection (3) of section thirty-two of this Act". The Amendment, in connection with the two following Amendments on the Notice Paper, makes the same provision where grants or loans are to be treated as dividends as is already made in the subparagraph where actual dividends are concerned, namely, for their grossing up in arriving at the trading income of the corporations. It is, therefore, little more than a drafting Amendment.

Amendment agreed to.

Further Amendments made: In page 43, line 31, leave out from "and" to first "the" in line 32.

In line 32, leave out "the dividend" and insert: any such dividend, grant or loan".—[Mr. Powell.]

Mr. Powell

I beg to move, in page 46, line 37, at the beginning to insert: Expenditure and receipts shall be treated as of a capital nature if, and only if, they would be so treated for income tax purposes and.

The Deputy-Chairman

It would be convenient to take with this Amendment the next Amendment, in the name of the hon. Member for Langstone (Mr. Stevens), in line 40, after "D", to insert: and no regard shall be paid to surpluses arising on the sale of, transfer of, or on receipt of compensation for damage to any asset which would not fall to be included in the profits of the trade for such purposes".

Mr. Powell

In the first Part of the Schedule we are dealing with the computation of the trading income of an overseas trade corporation otherwise than in circumstances of winding up. The only interest which attaches to that computation is in the allocation of dividends as between trading income and investment income. The total amount of the trading income, since as such it does' not attract tax, is not therefore, of any very significant importance, but when we come to Part II, dealing with distributions upon winding up, we are concerned with the whole of the trading income of the overseas trade corporation, since potentially that has now become subject to United Kingdom Income Tax.

In moving to Part II it is necessary to move over, broadly speaking, from ordinary accounting principles to normal Income Tax principles. The words that I propose to be inserted will ensure that expenditure and receipts shall only be treated as of a capital nature if, and only if, they are so treated for Income Tax purposes. I suggest that the Amendment logically follows from the purpose of Part II of the Schedule.

Mr. John Arbuthnot (Dover)

My hon. Friend has accepted, in substance, the Amendment in the name of my hon. Friend the Member for Langstone (Mr. Stevens) and myself to which you, Sir Gordon, referred. He has done it more briefly than we did and I should like to thank him.

Amendment agreed to.

Further Amendment made: In page 47, line 9, after "stock", insert: at the end of the period".—[Mr. Powell.]

Amendment proposed: In page 47, line 10, at end insert: 15. No deduction shall be made for sums set aside to meet a contingency except so far as those sums have been or will be employed to meet that contingency.—[Mr. J. Powell.]

Mr. G. R. Mitchison (Kettering)

I always ask for overtime if I am called to make a prophecy. I do not quite know what this provision means and I should like to hear about it from the Financial Secretary. I do not understand the words … except so far as those sums … will be employed to meet that contingency. Perhaps those who deal with tax are in a better position to know for certain whether a sum set aside for contingency will or will not be used for that purpose, but I should like to have the secret of how they do it.

Mr. Powell

I understand that at the time of the winding up it might be that the contingency for which the sums were set aside had not fully materialised, but, of course, the Inland Revenue would require to be satisfied by the firm on whom the onus of proof would rest that the sums would be absorbed in the purpose. I should add that this paragraph, like the Amendment just made to paragraph 13, is another provision to bring proper Income Tax principles into play in estimating trading profits on a winding up.

Mr. Mitchison

I am sorry, but I still do not understand. I understand the process of setting a sum aside, I understand the process of its employment, but what I do not understand is how anybody, even the company concerned, when a sum has been set aside for that purpose, can prove that it will be so employed.

Mr. Powell

I can conceive that at the time of the winding up of the firm there might, for example, be a debt outstanding, which indebtedness might arise out of a contingency for which these sums were provided. At that moment, it might not actually be true that the sums had been used, but it would, nevertheless, be certain that they must be so used.

Amendment agreed to.

Motion made, and Question proposed, That the Schedule, as amended, be the Fifth Schedule to the Bill.

Mr. Mitchison

There is one question I want to ask about this Schedule. Am I right in supposing that it definitely contemplates that on a winding up there should be a distribution in excess of the nominal capital or, if you like, the nominal capital and a capital reserve fund of the company, which may be made partly out of exempt trading income and will be treated not as a capital distribution but as an income distribution, and therefore, so far as the Inland Revenue and the company are concerned, will be subject to Income Tax?

Mr. Powell

indicated assent.

Mr. Edward du Cann (Taunton)

May I ask my hon. Friend a question? Am I correct in assuming that in computing the profits—I am referring particularly to paragraph 2 (1) of the Schedule the ordinary expenses of the central management and control of the trade incurred in the United Kingdom will be taken into account?

Mr. Powell

Yes.

Question put and agreed to.