§ The Chancellor of the Exchequer (Mr. James Callaghan)As hon. Members will know, there are provisions in the existing tax system to deal with avoidance of Surtax through the retention of profits by closely controlled companies. The temptation to withhold profits from distribution unnecessarily will be far greater under the new system because Income Tax as well as Surtax would be avoided. Clearly, the existing provisions must be extended to cover Income Tax as well as Surtax and must be tightened up in a number of respects. There will, therefore, he provisions in the Finance Bill which will impose Income Tax and Surtax on a closely-controlled company which fails Lo distribute a reasonable proportion of is profits, having regard to its needs for maintaining and developing its business.
So much for the internal aspects of the corporation tax.