§ (1) Where a principal company not itself carrying on trade but having a subsidiary company resident in the United Kingdom satisfies the Commissioners of Inland Revenue that for any period for which the status of the principal company falls to be determined under section thirty of the Finance Act, 1957, the principal company failed, apart from this section to qualify as an Overseas Trade Corpora-
184§ tion by reason only that, in consequence of some act done by the subsidiary company of which the principal company had no previous knowledge and from which it obtained no material advantage, the principal company was excluded by the proviso to subsection (1) of section twenty-three of that Act (holding companies excluded if having subsidiaries resident in the United Kingdom which are not Overseas Trade Corporations), then if the Commissioners of Inland Revenue in their discretion so direct the act shall not prevent the principal company being treated as an Overseas Trade Corporation for that period.
185§ (2) The powers conferred on the Commissioners of Inland Revenue by the foregoing subsection are in addition to, and not in derogation from, the powers conferred by subsection (2) of the said section thirty (under which the Commissioners may direct to be disregarded disqualifying acts done by the company whose status is in question and disqualifying events over which that company had no control).
§ (3) This section shall be construed as one with Part IV of the Finance Act, 1957; and subsection (4) of the said section thirty (which relates to appeals) shall apply in relation to the refusal of a direction under this section as it applies in relation to the refusal of a direction under subsection (2) of the said section thirty.—[Mr. Stevens.]
§ Brought up, and read the First time.
§ 11.0 p.m.
§ Mr. StevensI beg to move, That the Clause be read a Second time.
Where there is a group of companies of which one is the parent company, all the companies in that group must themselves be overseas trade corporations for the parent company itself to be an O.T.C. It means that all the companies have to be registered in this country but trading overseas. Equally, it follows that if one of the subsidiary companies in the group loses its O.T.C. status and for some reason is disqualified, the parent company also ceases to be an overseas trade corporation and that may mean a very severe loss of taxation advantage to the parent company.
I had on the Notice Paper a new Clause—(Loss of status by an Overseas Trade Corporation being a principal company)—which provided that if any subsidiary company in any circumstances lost its O.T.C. qualification that would not necessarily disqualify the parent company. The Chair, in its wisdom, has not selected that new Clause. This new Clause is very much narrower than that. It is limited to cases where the subsidiary O.T.C. company loses its qualification in circumstances which are not only unknown to the parent company but which confer no tax advantage on the parent company.
The new Clause provides that if the Commissioners of Inland Revenue, in their discretion so direct, in other words, if they feel that this is not a matter which should cause the parent company to be penalised, the principal company can continue to be treated as an overseas trade corporation for the period during which the subsidiary failed to match up 186 with the provisions of the 1957 Act. It seems to me very clear that this is a right and proper provision. It seems quite wrong that the parent company should accidentally lose its O.T.C. status. I commend the new Clause warmly to the Committee, and I hope that my right hon. Friend will be prepared to accept it.
§ Mr. MaudlingThis is a narrow but important point which on Report on last year's Finance Bill my right hon. Friend the Chancellor of the Exchequer promised to consider further. He has been thinking about it and is in agreement with my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) that in these circumstances, where a subsidiary has committed an act of which the parent company is unaware and from which the parent company derives no material benefit, it is reasonable that the parent company should not be heavily penalised. The new Clause makes provision to give the Commissioners discretion to remedy the situation, should it arise. My right hon. Friend is in agreement with the arguments advanced and with the Clause itself, and I ask the Committee to accept it.
§ Mr. MitchisonBut in what circumstances are the Commissioners to exercise this discretion? It would seem at first sight that the holding company having a subsidiary company must be responsible for what is done by the latter. If it does not know, it ought to know what the subsidiary is doing. No doubt those in charge of a company have occasionally to be responsible for acts of which they had no knowledge, just as in other walks of life people have to be responsible for acts of which they have no knowledge. But this rather remarkable separation may result in some cases where the discretion ought to be recognised. I think that the right hon. Gentleman the Paymaster-General ought to give the Committee some further indication of the practical limits within which the Commissioners will exercise their discretion. Or is it to be left entirely to them?
§ Mr. MaudlingThe Commissioners will exercise their discretion when they are satisfied that the conditions set out in the Clause have been met and that it is a genuine case; in other words, when an act has been committed without the 187 notice of the parent company and from which the parent company receives no material benefit. If they are satisfied that it is a genuine case, I expect them to use their discretion.
§ Mr. MitchisonIs that what the Clause says? It would be simple if it said that if they were satisfied they would do so-and-so, but I understand from the Clause that this is a discretionary power for the Commissioners. The right hon. Gentleman said that if they are satisfied that the conditions in the subsection are fulfilled they are bound to direct, whereas the Clause reads
if the Commissioners of Inland Revenue in their discretion so direct …There is reference to a discretion, and we are completely in the dark as to the lines on which it will be exercised. If all it means is that if the Commissioners are satisfied that the terms of the subsection have been fulfilled they will make this direction, that ought to be the language of the Clause
§ Mr. StevensPerhaps I can help the hon. and learned Member. There is no mystery about this. One of the essential qualifications for an overseas trade corporation is that it shall trade. It might well be that for a short time only a branch overseas, representing an overseas trade corporation resident in this country, might cease to trade, and technically, in the strict sense of the 1957 Act, that would disqualify the overseas trade corporation subsidiary, which in turn would disqualify the parent company. An incident of that sort is not a dreadful thing and it should not visit the parent company with heavy tax penalties. That is the sort of thing I had in mind when I tabled the Clause. The qualification for O.T.C. status is narrowly drawn, and rightly so. There is no mystery about this.
§ Mr. MitchisonI am sorry to be insistent, but that explanation takes me no further. The example which the hon. Member gave was of an omission, not of an act. The subsection refers to an act. It may be an inadvertent act as far as the principal company is concerned. I am dealing with a different point. By the terms of the subsection it is a matter for the discretion of the Commissioners. 188 The Paymaster-General told us that they will always exercise that discretion if the terms of the subsection are fulfilled. That state of affairs is usually expressed by saying that if the Commissioners are satisfied about so-and-so they shall do so-and-so. The language of the Clause is wider—in the sense that the Commissioners appear to have more to do, although narrower in its operation—and I am simply suggesting that if that is what is intended the simplest thing is to say in plain language what is intended and not to talk about a discretion when what is meant is satisfaction.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.