§ Mr. Powell
I beg to move, in page 26, line 33, to leave out subsections (3) and (4), and to add:(3) Where the Overseas Trade Corporation receives from another company which is also an Overseas Trade Corporation a dividend on shares in that other Overseas Trade Corporation or a grant or loan in a case where under paragraph 1 or paragraph 2 of the Sixth Schedule to this Act the recipient is to be deemed for the purposes of Income Tax Acts to have received a payment equal to so much of the grant or loan as is under the provisions of the Fifth Schedule to this Act to be regarded as paid out of exempt trading income, and—
- (a) either Overseas Trade Corporation is a subsidiary company of the other Overseas Trade Corporation, or
- (b) both Corporations are subsidiary companies of the same principal company which is also an Overseas Trade Corporation, the dividend, grant or loan shall, so far as it is to be regarded as paid out of exempt trading income, constitute trading income of the recipient.
§ The Deputy-Chairman (Sir Gordon Touche)
It will probably be convenient to discuss at the same time the Amendment in the name of the hon. Member for Dover (Mr. Arbuthnot), in page 26, line 33, to leave out subsections (3) and (4), and to add:(3) Where the Overseas Trade Corporation is a principal company and one or more subsidiaries of the Corporation are themselves Overseas Trade Corporations, any dividend on shares in any one of those subsidiaries paid either to the principal company or to any one of such subsidiaries, and any grant or loan which under paragraph 1 or paragraph 2 of the Sixth Schedule to this Act is to be deemed to represent a dividend paid to or by the principal company or to or by any one of such subsidiaries, shall so far it is to be regarded under the provisions of the Fifth Schedule to this Act as paid out of exempt trading income, constitute trading income of the recipient.
§ Mr. Powell
The present subsections (3) and (4) have the effect respectively that where a subsidiary O.T.C. pays a dividend to a principal O.T.C. or where a principal O.T.C. makes a grant or loan to a subsidiary O.T.C., the resources received are treated as the trading income of the recipient and, therefore, attract the exemption conferred by O.T.C. status.
However, that leaves a third, and important, case out of account, namely where the payment or transfer occurs not via the principal company but directly 568 between subsidiaries. There is, clearly, no reason why that direct transfer should be penalised when the indirect transfer is to be permitted without going through the hoop of United Kingdom Income Tax. That result can be achieved and the wording can be simplified by the substitution of the new subsection.
§ Mr. Mitchison
This is another of the experiments in the curious family of O.T.C.s so dear to the heart of the Financial Secretary. This one sounds a bit more sensible than the last lot. The complication of a scheme of this kind is the best comment on its practicability and the best comment on the possibilities of evasion that it necessarily prevents. If the Financial Secretary at this stage has been able to think up all these possibilities, how many more possibilities will he have been able to think up next year?
§ Mr. Arbuthnot
Once again, I thank my right hon. Friend for the way in which he has met the case we have sought to meet in our Amendments.
§ Amendment agreed to.
§ Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.
§ 11.0 p.m.
§ Mr. du Cann
I wish to ask the Financial Secretary a question relating to subsection (2, b). I should be grateful if he could give the reason for the inclusion of the words "without security".
I appreciate that they may be written so as to exclude from the provisions of the Clause the benefits which arise therefrom, but when we were discussing Clause 21 I pointed out that it was the usual practice of certain Australian companies and agency companies to lend money in certain cases without security. It would seem on the face of it—thinking of those companies and of those companies alone, although I appreciate that other considerations may be involved—a little illogical and unreasonable that what has been ordinary commercial practice should involve such companies in some difficulties under this Clause. If my hon. Friend could explain. I should be most appreciative.
§ Mr. Powell
As my hon. Friend knows, the question here is what falls within the ambit of trading and what within the ambit of investment. Any income 569 arising from the lending of money would be classified as investment income, and the purpose of these words is merely to make it clear that the income arising from the lending of money is investment income, even when the money is lent without security.
§ Question put and agreed to.
§ Clause, as amended, ordered to stand part of the Bill.