§ 3.55 p.m.
§ The Financial Secretary to the Treasury (Mr. J. Enoch Powell)
I beg to move, in page 22, line 30, at the end to insert:(3) Where a company which has not qualified as an Overseas Trade Corporation in the period of twelve months beginning with the sixth day of April in any year, but which has so qualified in a previous period, only failed so to qualify in the said period of twelve months because of transactions carried out by it in that period which were, having regard to the activities of the company as a whole, of a minor nature, and relief would, apart from this subsection, be allowable under the Income Tax Acts in respect of a loss sustained by the company in the said period of twelve months in carrying on a trade, or in respect of capital allowances falling to be made in charging the profits or gains of such a trade for the year of assessment comprised in the said period of twelve months, against income tax charged on income of the company which, if it qualified as an Overseas Trade Corporation, would be investment income, then if it appears to the Commissioners of Inland Revenue that the sole or main benefit which the company would derive horn not so qualifying in the said period of twelve months would be the allowance of that relief, together with any corresponding reduction of the liability of the company to the profits tax, they may direct that no such relief shall be given and that the loss or the capital allowances in respect of which it would have been given shall be left out of account for all the 958 purposes of the Income Tax Acts and of the enactments relating to the profits tax.(4) A company which is aggrieved by the refusal of the said Commissioners to give a direction under subsection (2) of this section or by their giving a direction under subsection (3) of this section may, by notice in writing to that effect given to the Commissioners within thirty days from the date on which notice is given to the company of the refusal or, as the case may be, of the direction, require the question whether a direction ought to be given to be heard and determined by the Special Commissioners, and the Special Commissioners shall hear and determine the question in like manner as an appeal made to them against an assessment to income tax under Schedule D.All the provisions of the Income Tax Acts relating to such an appeal (including the provisions relating to the statement of a case for the opinion of the High Court on a point of law) shall apply accordingly with any necessary modifications.The object of this Amendment is to make two improvements in this Clause which were suggested during the Committee stage. In its present form, the Clause provides that the Inland Revenue may disregard minor acts or occurrences which would disqualify a company from being an overseas trade corporation if, in its opinion, there was no material advantage to the company by so disqualifying itself. It was pointed out in Committee that it was unusual for this power to be given to the Commissioners without the right of an appeal, and, accordingly, an appeal against the refusal of the Commissioners to give such a direction is provided by the new subsection (4).
It was also pointed out that a company might disqualify itself, not inadvertently hut deliberately, in a particular year to gain a tax advantage thereby. I think that there was general agreement on both sides of the Committee that companies should not be able to disqualify themselves, or qualify at will from year to year, according to the particular tax advantage which they might thereby gain. Subsection (3) provides against that by giving the Commissioners a power to disregard, in the event of a company in their opinion deliberately disqualifying itself for such a purpose, the benefits of allowances which they would thereby gain. It thus provides a penalty and a means of preventing this form of avoidance. The appeal procedure provided in subsection (4) will also apply to this power of the Commissioners to give a direction.
§ Mr. G. R. Mitchison (Kettering)
We consider it not unreasonable to have an appeal in both the cases provided for here, and we generally welcome the new provision in subsection (3) and its intention.
I am bound to say that I have a little anxiety in this, as in another case to which we shall refer later, about the words used. They are that it must appear to the Commissioners…that the sole or main benefit which the company would derive…In moving the Amendment the Financial Secretary used slightly different words. He said "deliberately", and it seems to me that there are cases in which the Commissioners might be in some doubt about the sole or main benefit point, but might none the less have reason to suppose that it was a deliberate act on the part of the company.
Therefore, I wish the words could have been rather wider, though in the context of this Clause we hardly feel that that is a ground for objecting to it, and with the general principle that companies should not get benefit from deliberately disqualifying themselves, we entirely agree.
§ Amendment agreed to.
§ Clause, as amended, ordered to stand part of the Bill.