HC Deb 06 July 1960 vol 626 cc578-98
Sir E. Boyle

I beg to move, in page 21, line 2, after "sixty", to insert: and otherwise than in pursuance of an agreement made on or before that day. We now come to Clause 24, and this first Amendment to it is one of the easier to understand of those with which the House has dealt today. As it emerged from the Committee stage, Clause 24 imposes a charge to tax in cases where a non-dealing company acquires assets from an associated dealing company, or disposes of an asset to an associated dealing company, after the 5th April. It is the Chancellor of the Exchequer's view that, without any prejudice to the principles of the Clause, we should take out of it transactions made in pursuance of an agreement made on or before 5th April, so as to make it plain that the Clause does not have any retrospective effect. That is the sole purpose of the Amendment.

Mr. Diamond rose—

Mr. Speaker

The Question is;—

Mr. Mitchison

On a point of order. Mr. Speaker. My hon. Friend the Member for Gloucester (Mr. Diamond) was on his feet when you started to put the Question.

Mr. Speaker

I beg the hon. Gentleman's pardon. I did not see him. I have not completed putting the Question. Mr. Diamond.

Mr. Diamond

I thought that you were looking at me, Mr. Speaker, but the reflection of the light in your glasses misled me. I apologise for inconveniencing you.

I want to raise a point concerning the date of agreement. What constitutes the date of the agreement or the evidence of the agreement? An agreement is not necessarily in writing. A verbal agreement may be adduced. If it is verbally adduced—and we are dealing here with parties who, to be precise, conspire together to defeat the Inland Revenue, to manipulate their affairs to their advantage and to its disadvantage—they will not be too finnicky about saying that, within their recollection, the agreement, 'though put into effect after the Bill became an Act, was reached during a lunch at the Savoy over the third brandy before the date specified here, and, therefore, would not be covered by it. Is it sufficient that we should leave this in these rather wide words?

Sir E. Boyle

I am assured that there is a great deal of precedent for this. On the question of what constitutes an agreement, and of the date when it was reached, I am assured that that must be a point of fact to be determined by the courts, and that the wording of this Clause makes it perfectly clear what the Government and the House have in mind. The date of an agreement must be a matter for the courts to decide on the evidence in each case.

Amendment agreed to.

Sir E. Boyle

I beg to move, in page 21, line 5, after "company" to insert: and not being securities which are shown to have been acquired in pursuance of an offer for sale to the public made by that company and in the allotment of which no preference was given to associated companies".

Mr. Speaker

It would be for the convenience of the House to consider, at the same time, the following Amendment in the name of the hon. Member for Wolverhampton, South-West (Mr. Powell) and other hon. Gentlemen, in line 8 at the end to insert: such asset not being securities so disposed of with a view to being offered for sale to the public by the dealing company

Sir E. Boyle

That would be convenient, Mr. Speaker.

The Amendment which I am moving arises directly out of a point raised by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) during the Committee stage. The purpose is to take out of Clause 24 securities acquired by a non-dealing company from an associated dealing company in connection with a public offer for sale made by the associated dealing company. The point which he raised is within the recollection of the House. He raised it when moving an Amendment designed to have the effect of this one we are considering.

As I recall it, the argument he used was that it was anomalous that an investment company which acquired shares in a genuine public issue by an associated issuing house should be caught by the Clause if it realised the shares subsequently at a profit, whereas if the issue had been handled by an independent issuing house the investment company could take up the shares and remain outside the Clause. I undertook to look into the matter.

We are also considering an Amendment by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) and some other hon. Members. That raises a separate point which my hon. Friend the Member for Walsall, South also raised on the same occasion. At that time, he moved an Amendment which would take out of the charge imposed by subsection (1, b) an investment company or other non-dealing company which sold securities to an associated dealing company to be offered for sale to the public. I think that the House will remember that in Committee I made rather less sympathetic noises in reply to my hon. Friend on that issue than on the earlier issue.

We have considered the matter since the Committee stage, and it is my right hon. Friend's view that we cannot make a concession in the second type of case without rather gravely weakening the purpose of the Clause, because it is probable that the investment company in that case has been nursing the shares until a favourable opportunity has arisen for disposing of them, so that the profit is substantially in the nature of a dealing profit.

Whereas my right hon. Friend has put down an Amendment to meet the first of the points which my hon. Friend the Member for Walsall, South raised in Committee, he does not feel that he can meet a second without, perhaps to a damaging extent, weakening the purpose of the Clause.

9.45 p.m.

Mr. Mitchison

I confess that I am not altogether happy about the Amendment. I see the force of the arguments which the Financial Secretary put and, in view of the case he had in mind, a tolerably simple case, there is justice in the argument. However, this is a transaction between an associated company and an issuing company and it is let out if there is an offer for sale to the public and no preference given to the associated company.

That might open the door to some trouble and it is the sort of case, I should have thought, where some other sort of arrangement should have been made, because the terms of the Amendment are rather wide. I shall not, however, oppose it at this hour of the night. This is another instance of the sort of case in which, if the Amendment had been brought forward at an earlier stage, it would have been useful to have had a discussion, because that might have led to some result. This is like an Order brought up on a Prayer—we have either to accept or refuse it, and that is the difficulty with Amendments at this stage.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

I begin by expressing the thanks of my hon. Friends and myself to the Financial Secretary for meeting the first point which we raised on this subject in Committee. If I do not go into the arguments of the hon. and learned Member for Kettering (Mr. Mitchison), it is not because I am afraid to meet them, but simply for the convenience of the House. I confine myself to a few remarks about the second Amendment which you, Mr. Speaker, have kindly allowed us to discuss at the same time.

Clause 24 is aimed against the shunting of shares from an investment company to a dealing company and vice versa, the idea behind that being that shares likely to appreciate will be moved by an unscrupulous manipulator from the dealing company to the investment company, which would not be liable for taxation on capital profit, while shares liable to depreciate would be moved from the investment company to the dealing company when, if the shares were sold at a loss, the dealing company would be able to write off that loss against its other earnings. The Government took the view that these transactions do not stand up to the light of day, by which I mean the light of a public issue. That point was fully taken, and I do not want to say any more about it.

On the second point, in Committee my hon. Friend the Financial Secretary said: If the issue were made through a dealing company not associated with the group, the investment company would realise its profits tax free, and it is particularly anomalous to impose a charge to tax where the issue was made through the associated dealing company since the family company has only acted in the most natural way possible by going to the associated dealing company to arrange the public flotation. My hon. Friend was putting up the case for the Clause. He then answered his own words by saying: Once the general proposition is accepted that an investment company should be liable on profits it makes out of selling assets to the associated dealing company, it seems rather difficult to see whether there is sufficient ground for exempting this type of transaction …".—[OFFICIAL REPORT, 24th May, 1960; Vol. 624, c. 379.] That is the point upon which I join issue with my hon. Friend. I do not accept—and I do not believe the House accepts—the proposition that a company of any sort should be made liable to taxation on its capital profits without at the same time being allowed to offset those capital profits by capital losses. In those remarks my hon. Friend is asking us to accept the proposition that an investment company which by its very nature is not allowed to offset capital losses should nevertheless be charged on a capital profit.

This proposition savours of the rather imaginary world in which we have been living in our discussion of the Bill during the last two or three months—a world where all transactions are profitable, and the only question people have to consider is how best to dispose of those profits. Those who have experience of business know that that is not the case, and that losses occur just as well. With the best intentions, and acting on the best information, many companies of the kind to which my hon. Friend the Financial Secretary referred as being nursed are not able to produce a healthy child. Sometimes the child becomes particularly sickly and comes to an untimely end. This is a common experience, which I do not need to repeat a hundred times. That is my objection to the general proposition enunciated by my hon. Friend.

Some of the anomalies which will arise if we accept the philosophy which causes the Government to reject the second part of the Amendment are worth detailing. I know of a group of companies which includes an important industrial company, privately held, and also a dealing company, or an issuing house. Under the Bill it will not be possible for the issuing house to take any part in the eventual public flotation of this important private industrial company, because the shareholders in the investment trust which controls the industrial company will be caught for Income Tax on the capital profit resulting when those shares are sold to the public if the business is done through the issuing house. If the transaction is carried out through another issuing house, however, no mischief is done.

Another example which has also been mentioned to me is that of an investment company which has taken an interest in shares in a foreign bank. Owing to developments in the Common Market and similar matters this foreign bank says that it would like to have a quotation for its shares on the London Stock Exchange. It suggests to the investment company, which already holds some of the shares, that it will arrange a placing through the issuing house and that some of the shares from the investment company will be put in with other shares coming in to be placed.

Again this is caught and the important issuing house will have to say to its friends on the Continent, "We cannot do this business. You must go to our friends next door to do this business and then it will be free of British tax. But we should be caught for Income Tax on the capital profit which we have made in holding these shares, which we had not nursed in any way but which we have held and they have gained in strength."

It may be argued that in these circumstances nothing is easier than for important issuing houses to come to a reciprocal agreemen and arrange to take in each other's washing. In other words, the issues which they cannot handle because of the restrictions in this Clause would be passed on then to their neighbours and vice versa. Obviously, that would be a simple arrangement to make, but it is repugnant to the sense of this House that we should put important people, doing first-class business on first-class and accepted lines, in the position of having to enter into a subterfuge of that sort.

A further point which arises, and which I wish to emphasise, is that, as hon. Members know, it very often happens that no single issuing house is responsible for one issue. There may be an important issue of shares in which a group of issuing houses combine. I need only go back to the various steel flotations in which I think nearly all the important issuing houses in London took part. I am not saying that the same situation arose in relation to Richard Thomas and Baldwins; those shares are not held in investment trusts. But I am saying that where there is a general issue in which more than one issuing house is involved we are piling up quite unnecessary legal difficulties which will have to be sorted out at great expense to all concerned in the courts and with the aid of private advisers.

I urge my hon. Friend, for those reasons, to give this matter a little more thought during the coming year to see whether the effect of publicity which attends on a public issue, and which he has admitted has a purifying effect on transactions whereby investment companies acquire shares, would not also be useful on the reverse side when an investment company sells shares.

Mr. Powell

I am sure that my hon. Friend the Financial Secretary recognises that here there is a real difficulty which has been exposed by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). The Government have decided and are recommending the House to accept that there is no reason why an investment company should not bona fide take up shares issued to the public by its dealing parent. The converse of that proposition is that there is no reason why a company in which shares are held by an investment company should not have its shares placed or issued to the public by the dealing company, which is the parent of that investment company. The one proposition is the converse of the other.

In both cases, as was pointed out by my hon. Friend, there is the safeguarding publicity of the fact that there is an offer to the public, and, therefore, the true value can be ascertained. I venture to join with my hon. Friend in urging on the Government the consideration of both parts of this proposition.

Amendment agreed to.

10.0 p.m.

Sir E. Boyle

I beg to move, in page 21, line 14, at the end to insert: Provided that where, in the case of any such acquisition of assets by a company as is mentioned in paragraph (a) of this subsection or any such disposal of assets by a company as is mentioned in paragraph (b) thereof, the assets fall by virtue of a direction under section four hundred and sixty-nine of the Act of 1952 (sales etc. between associated persons) to be treated in computing the profits of the other associated company for income tax purposes as having been sold for a price other than that actually paid, the foregoing provisions of this subsection shall have effect as if the assets had been acquired or, as the case may be, disposed of for that other price instead of for the price actually paid for them. This Amendment simply ensures that the interaction of Clause 24 of this Bill and Section 469—the "arm's length" Section—of the 1952 Income Tax Act cannot result in a double charge. My hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) referred to this possibility during the debate in Committee, and I pointed out then that he acted very properly in raising this point.

The Amendment provides that in any case within subsection (1) of this Clause where Section 469 of the 1952 Act has already been applied, the subsection shall have effect as if the assets had been transferred at the price at which they are treated as having been transferred under Section 469. That is the kind of technical but highly important point from the point of view of doing our duty to the taxpayer which is bound to come up, and I think that the whole House will be very grateful to my hon. Friend, who was absolutely right in raising this point, which needed correcting.

Mr. Powell

I am much obliged to my hon. Friend for what he has just said and for making this Amendment to the Clause, which will rule out the possibility of an unfair double charge. It is now quite clear that my hon. Friend the Financial Secretary has a very delicately graduated scale of approbation. Last night we came to a point of mine which he described as a fair point, but which he decided on Report not to meet. The next point was one raised by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) which had been described as a very fair point and it was met by an Amendment moved in by the Committee last night. Now we have a point which reaches the high order of merit of being described by my hon. Friend as absolutely right and which is about to be added.

Mr. Millan

The Amendment mentions in line 3 "paragraph (b)" in regard to disposals. I wonder if it is not possible that there could be a disposal here which would come under paragraph (a) and should also be covered by this Amendment. I wonder whether paragraph (a), dealing with a non-dealing company could cover the disposal of the assets to another associated company that is a non-dealing company acquiring assets from an associated company and subsequently disposing of them to another associated company. So far as I can see, that transaction would be covered by (a). If so, this Amendment, in addition to referring to (b) in line 3, should mention (a) to make it absolutely right.

Sir E. Boyle

I can assure the hon. Member that that difficulty could not arise. The point is that Section 469 deals with transfers of assets between associated companies, and it empowers the Commissioners of Inland Revenue to direct that assets should be treated as having been transferred at market value in computing the taxation liability both of the seller, where the asset is sold at a price below open market value, and also of the buyer when it is sold at a price above open market value. Therefore, it could be applied in both types of case under Section 469.

I could give a fairly lengthy account of exactly how the Amendment will operate. I shall certainly take note of the point made by the hon. Member, but I can assure him that it will, in fact work all right.

Amendment agreed to.

Sir John Barlow (Middleton and Prestwich)

I beg to move, in page 22, line 5, after "right", to insert: (other than a right arising out of the mere ownership of shares)". It appears that subsection (4) is much wider than it seems at first sight. It appears to apply to, among other things, the depreciation in the value of shares held by a dealing company in an associated non-dealing company.

An investment dealing company is allowed to deduct from its taxable income depreciation of any shares held, to the extent that the market value of those shares falls below their cost. Shares held by a dealing company are trading stock, and their depreciation is allowed on grounds applicable to all similar trades that stock is valued for tax purposes at the lower of cost or market value.

It is, therefore, quite equitable that any depreciation suffered on shares held in an associated non-dealing company should be regarded as taxable income of the latter company, particularly as the circumstances would be beyond the control of either company and would not in any way benefit the non-dealing company. [HON. MEMBERS: "Reading."] I am trying to be as brief as possible. I know that time is very short. I admit that for that reason I have rather full notes on this very technical matter.

The tax charge would operate to the detriment not only of the dealing company but also of the minority shareholders in the non-dealing company. As the subsection stands at present, it seems to cover a far wider area than I think the Government desire. We all wish to control matters of this kind with in reason, but I think the Government are probably going very much wider than they supposed at first sight.

Sir E. Boyle

As my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) says, this is quite a technical matter. On the other hand, I must tell the House that this subsection is integral to the Clause and an important subsection within the Clause. An example of the type of manipulation against which this part of the proviso to subsection (4) is aimed—this is an important case—is where a dealing company has paid its associated company for an option which has become worthless because it has expired.

As I understand the Amendment, my hon. Friend wants to say that the subsection shall apply only to a right other than a right arising out of the mere ownership of shares. I am told that in the ordinary way, if shares taken by or acquired by a dealing company in an associate dropped in value because the associate company was unsuccessful, the dealer would get a deduction for the fallen value of the shares. But that would not be a depreciation in the value of any rights subsisting against the associated company, but in respect of a depreciation in the value of the dealing company's property.

I listened to my hon. Friend's case as carefully as I could. I think that he and some others are, possibly, concerned with the chance that shares might be taken up conferring certain rights on the winding-up of an associated trading company, and that the associated company might be unsuccessful and have very little left when it went into liquidation, so that the rights conferred by the shares were of little or no value. Again, as drafted, the Clause would not have any application. The situation would not be that the company got a deduction in respect of the depreciation in value of its rights, but that, having been allowed as a trading expense in the first instance whatever it paid for the shares, it would have brought in as a trading receipt at the end of the day the lesser sum which it had in fact realised.

We have looked at the point carefully, but I do not believe that the Amendment really would be necessary In relation to any possible genuine case where no question of tax avoidance was involved. On the other hand, I must say that the Amendment could have an effect—I am sure that it is an effect which my hon. Friend never intended—in relation to a real avoidance device or intention.

For instance, a dealer might acquire preference shares in an associated company carrying the right, which would be a right arising out of the mere ownership of shares, to substantial arrears of preference dividend. If the associated company had the funds to meet those arrears, the price of the shares would be substantially enhanced by the right to draw them. If arrangements were then made to waive the arrears of preference dividend, notwithstanding that the associated company still had funds available, the value of the shares would drop and the dealer would then get a deduction. Any case of this kind ought then to remain caught by the subsection.

On the other hand, if when the shares were acquired the associated company had no funds to meet the arrears of dividend and it was for that reason that they were waived, the value of the shares would remain unaffected, so there would not be any question of the dealing company becoming entitled to a deduction and the Clause would not apply.

Having looked into this, I do not believe that my hon. Friend's Amendment would make any difference in any genuine case not affected by the Clause, but I think that there would be dangers if we accepted the Amendment of certain avoidance tricks not being caught by the Clause. It is just for that reason that I cannot advise the House to accept the Amendment.

Sir J. Barlow

I am very much obliged to my right hon. Friend for his very full explanation. In view of his clarification of the point, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir E. Boyle

I beg to move, in page 22, line 12, to leave out from "received" to "income" in line 13 and to insert: on the last day of the period It may be convenient to the House also to take the Amendment in page 22, line 15, at the end to insert: Provided that—

  1. (a) where the company not being a dealing company is carrying on a trade, the said income shall, if the company so elects, not be so chargeable but shall be deemed to have been a receipt of the trade, or, if the company is carrying on more than one trade, to have been a receipt of such one of the trades as the company may choose, and, if the company is an Overseas Trade Corporation, to have been trading income;
  2. (b) where the said company is carrying on, or was formed to carry on, a trade, then if the said right subsisting against the company was a right to the repayment of moneys lent for meeting expenditure which 590 has proved (in whole or in part) abortive, or the payment to the company was made for meeting such expenditure, and the expenditure is such that the company is not entitled in respect thereof to any allowance or deduction in computing losses or gains, this subsection shall not apply in so far the expenditure proved abortive.
I will, first, say a few words about the subsection and its relation to the two Amendments. Under Clause 24 (4), as we now have it, a non-dealing company, either an investment company or an ordinary trading or manufacturing company, which receives a payment from a —

Mr. Millan

On a point of order. As far as I can see, the Amendments in lines 12 and 15 are not related in any way. One deals with the assessment period and the other deals with an entirely different matter. Is it in order for us to take them together, Mr. Deputy-Speaker?

Mr. Deputy-Speaker (Sir Gordon Touche)

It is a matter entirely for the convenience of the House.

Sir E. Boyle

The point is that the Amendment in page 22, line 12, is, as I shall hope to show the House, really a paving Amendment for the Amendment in line 15. That often happens in our proceedings. It will be easiest if I try to explain the Amendment in line 15 to the House and then show how the Amendment in line 12 is intended as a paving Amendment to the Amendment in line 15. It will no doubt be perfectly in order for the hon. Member for Glasgow, Craigton (Mr. Millan) afterwards to raise a question on either Amendment if he wishes to do so.

Under subsection (4), as it has now emerged from Committee, a non-dealing company which receives a payment, not otherwise taxable in its hands, from an associated dealing company which is entitled to deduct that payment in computing its profits is liable to tax on the amount of that payment under case VI of Schedule D.

The Amendment in line 15 provides that, if the non-dealing company is carrying on a trade, that company may choose, instead of being charged under case VI, to have the payment brought in as a trading receipt. Secondly, the Amendment takes out of the Clause loans to a company carrying on, or formed to carry on, a trade, to the extent that the loans have been used to meet abortive expenditure for which the trading company is not entitled to any Income Tax relief.

This Amendment arises out of a matter raised in Committee by my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow). My hon. Friend referred in Committee—I took a note of his point—to the effect of the Clause on the operating subsidiaries of a mining finance house. The same point has been raised with us by the British Overseas Mining Association.

As I understand the problem, it arises in this way. For example, a mining finance house which is taxed as a dealing company may make a loan to an operating subsidiary company. Then the operating subsidiary company spends the money but fails to make a success of the undertaking, and the money is lost and written off by the mining finance house.

The Clause as drafted imposes the liability under case VI of Schedule D on the subsidiary company, which may very well in these circumstances have no money at all to pay the tax. The complaint that in any such case the Clause goes too far has been a valid one just to this extent he amount loaned has effectively been lost to the group; and secondly, the recipient company gets no set-off by way of loss relief or capital allowance in respect of the expenditure. To these two extents it seems to us that this was a reasonable complaint.

10.15 p.m.

To a great extent the expenditure by the operating company will attract relief of taxation. It will either enter into the computation of a loss which, under Section 341 of the 1952 Act, may be set against other income of the year in which the loss is incurred or be carried forward to be set against future trading profits. If the expenditure were on revenue account it would come into the computation of losses in the ordinary way. If it were on capital assets which rank for capital allowances, unrelieved capital allowances can be brought into the computation of a loss relievable against other income under Section 341. But the operating company may fail to qualify for relief on the full amount of the expenditure under the Clause as at present drafted for two reasons.

First, because the loan may have been expended on a capital account on assets not ranking for capital allowances, as for example in the acquisition of mineral rights in the United Kingdom; and secondly, if there are no trading profits, losses and capital allowances of previous years cannot be set against the case VI charge.

A similar consideration could conceivably arise outside mining, although it is the mining case that we had principally in mind. That is the reason for this Amendment whereby, as I have said, if a non-dealing company is carrying on trade the company can elect instead of being charged under Case VI, to have the payment brought in as a trading receipt. The reason why this Amendment is drafted in general terms is that it could conceivably arise outside mining and we thought that it should be drafted to apply to all companies carrying on or formed in order to carry on a trade. So much for the second of the two Amendments—page 22, line 15.

The first Amendment, page 22, line 12, is really a paving Amendment. Subsection (4) applies where the dealing company becomes entitled to a deduction, in respect of a payment to a non-dealing associate, in computing its profits for any period ending after 5th April, 1960.

Under the subsection as at present drafted, the non-dealing associate is treated as receiving an equivalent payment of income for the year of assessment in which that period ends. But if a trading company elects to have the payment treated as a trading receipt, this needs to be made the receipt not of a year of assessment but of an accounting period for which the company's profits will fall to be computed.

The point of the Amendment, therefore, is to provide a precise date on which a taxable payment is to be treated as arising to the recipient company and, as the House will no doubt have gathered from the Amendment, that date is the last day of the period for which the dealing company gets a deduction. So, although the first Amendment apparently deals with a different point from that dealt with by the second Amendment, it is simply a paving Amendment to the second Amendment, which is the important one. It simply arises out of the need that if a trading company elects one way, that is to say, to have this treated as a trading receipt, it has to be made a receipt of the accounting period for which the company's profits are to be computed.

I am sorry that this is a slightly complicated series of Amendments, but it arises out of a perfectly genuine point that has been raised, and I think that my right hon. Friend has been right to give the Amendment a slightly greater degree of generality so that it goes rather beyond the mining case.

Mr. Millan

I am not very clear about paragraph (b) of the Amendment to line 15. The Financial Secretary has explained it with particular reference to the acquisition of mining rights. He has said that if we take a mining finance company with an associated operating company and the associated operating company spends money on the acquisition of mineral rights, that would be money in respect of which it would not be entitled to any reduction or allowance or deduction in computing losses or gains. Am I to understand, if that is so, that when the money has been expended directly, in this case by the mining finance company, the same position would obtain?

If, in fact, the finance company could not deduct this expenditure in computing its profits or losses, there seems to be no reason why it should be able to do so through the intermediary of the operating company. As I understand him, the hon. Gentleman has said that if the mining finance company does not spend the money on the acquisition of mineral rights directly, but through the operating company, the paragraph will expressly permit that money to be allowed as a deduction in computing losses or gains. I think that we need a little further explanation of that.

Sir J. Barlow

Perhaps I may take this opportunity to thank my hon. Friend for meeting me as far as he has done here. This is an extremely complicated matter, and I am very grateful to him for what he has done.

Mr. Mitchison

May I ask if my hon. Friend the Member for Glasgow, Craig-ton (Mr. Millan) can have an answer to the very pertinent question he asked?

Sir E. Boyle

First, in anticipation of his Amendment, I should like to thank my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) for having spotted a misprint. By leave of the House, I shall try to explain to the hon. Member for Glasgow, Craigton (Mr. Millan) the purpose of paragraph (b) of the Amendment to line 15. The point about that paragraph is that it provides for the case where the loan was spent on abortive expenditure which is not brought into the computation of loss and does not rank for capital allowance—that is, in the words of the paragraph, on expenditure in respect of which the company —and I am quoting here, because I cannot do better, from the words of the paragraph: is not entitled … to any allowance or deduction in computing losses or gains … As I understand it, in regard to the extent to which any such expenditure proved abortive, the loan used to meet that expenditure shall not have been brought within the charge imposed by the Clause. Paragraph (b) covers both the case where the operating company is carrying on a trade and the case where it was formed to carry on a trade but, because the project was abortive and never proved successful, it never actually started.

Mr. Millan

My point is this. If the company making the loan had spent the money itself directly, and not through the operating company, would that money have been deducted in computing profits and losses?

Sir E. Boyle

The short point on that is that the mining finance house gets a deduction for expenditure on the United Kingdom mineral rights.

Amendment agreed to.

Amendment proposed, in page 22, line 15, at end insert:

Provided that—
(a) where the company not being a dealing company is carrying on a trade, the said income shall if the company so elects, not be so chargeable but shall be deemed to have been a receipt of the trade, or, if the company is carrying on more than one trade, to have been a receipt of such one of the trades as the company may choose, and, if the company is an Overseas Trade Corporation, to have been trading income;
(b) where the said company is carrying on, or was formed to carry on a trade then if the said right subsisting against the company was a right to the repayment of moneys lent for meeting expenditure which has proved (in whole or in part) abortive, or the payment to the company was made for meeting such expenditure and the expenditure is such that the company is not entitled in respect thereof to any allowance or deduction in computing losses or gains this subsection shall not apply in so far the expenditure proved abortive.—[Sir E. Boyle.]

Question proposed, That those words be there inserted in the Bill.

Amendment to the proposed Amendment made: In line 14, after "far", insert "as".—[Sir J. Barlow.]

Proposed words, as amended, there inserted in the Bill.

Sir E. Boyle

I beg to move, in page 22 line 23 at the end to insert (6) Any loss which a company, not being a dealing company, sustains in any transaction falling within subsection (1) of this section by virtue of paragraph (a) thereof shall be treated as being a loss to which section three hundred and forty-six of the Act of 1952 (relief in respect of losses in transactions the profits of which would be chargeable under Case VI of Schedule D) applies, so however that relief under that section for any loss to which that section applies by virtue of this subsection shall be given only to the extent that that loss can be deducted from or set off against profits arising from other transactions falling within subsection (1) of this section by virtue of paragraph (a) thereof. The simple effect of this Amendment is that where a company sustains any loss as a result of a transaction in assets acquired from an associated dealing company, and, had a profit resulted, it would have been taxable by virtue of the provisions of subsection (1) (a) of Clause 24, the loss may be set against profits arising from other transactions falling within subsection (1) (a).

This is really a point that arose during the Committee stage, and I think that the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) will no doubt have noticed that all except one of the Amendments to Clause 24 arose out of points raised in Committee. It was raised by my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) and by my hon. and learned Friend the Member for Warwick and Leamington (Mr. Hobson). Both hon. Members raised the point that it was wrong that the Clause should impose a charge on profits without giving any relief for corresponding losses, and I said during the Committee stage that I would consider the point. The Clause not only taxes profits made by a non-dealing company out of a transaction in an asset which it acquired from an associated dealing company, but it also charges the profit made by a non-dealing company on disposing of an asset to an associated dealing company.

The view that my right hon. Friend has taken is that the relief should be confined to the case where the non-dealing company buys an asset from an associated dealing company and subsequently disposes of it outside the group. In such a case the loss arises after the transaction between the associated companies has taken place.

The reason that we have not gone further on this Amendment and have not gone so far as to give relief for losses incurred by a non-dealing company on disposal of an asset to an associated dealing, company, is that in that case the non-dealing company can surely choose whether it sells to its associated dealing company or through the open market. To have given relief in the case of this kind of transaction would have been an open invitation to a non-dealing company, which had a dealing associate, to dispose of any assets whose value had already fallen, so that a loss on sale was certain, through its associated dealing company so as to get a tax relief to set off against profits.

This is one of those cases where the Government have had a fairly wide course suggested to them, where we have been right to make an Amendment to the Bill to provide in the one case that the loss may be set against profits but not to go quite as far as the Amendment which was urged in Committee.

Mr. Mitchison

While I trust that in the course of these Amendments the Government have not issued too many, sealed invitations to persons to take advantage of them, the argument that the hon. Gentleman puts forward seems to me much more reasonable than the suggestion that in any circumstances 129 Amendments to a Finance Bill on the Report stage can be justifiable on the part of any Chancellor of the Exchequer.

Mr. Millan

This Amendment is obviously fair in so far as we are dealing with the ultimate disposition of the assets of a company to someone else outside the group. That is obviously its intention.

May I raise this point once again? Are we absolutely clear that paragraph (a) does not include a subsequent disposal of assets to another associated company? It does not say … subsequently disposes of these assets to a non-associated company or to a person not being an associated company. Are we sure that paragraph (a) could not include a subsequent disposal of the assets to another associated company? If it did, this Amendment would obviously leave a loophole. I do not expect an answer to this question tonight. In any case, it is probably too late now to do anything about it. I raised a similar point at an earlier stage and I did not really get an answer, but I hope there is not a loophole here.

Sir E. Boyle

By the leave of the House, I will answer the hon. Member who has raised this point on a number of occasions on this Clause. It is my belief that the Clause as now drafted will be efficient. In response to suggestions, I think that we have made one or two very reasonable Amendments to the Clause and have given concessions, but I do not think that the main effect of the Clause will be jeopardised thereby.

Incidentally. I do not think the Clause has had as much discussion as some Clauses have had. It is an important Clause from the point of view of tax avoidance, because in closing a loophole there was a real danger that we might have done injustice in some cases. It is my real hope that as a result of the representations which have been made we have got the Clause about right.

Amendment agreed to.