§ The Chancellor of the Exchequer (Mr. James Callaghan)Another problem to which many of the representations I have received have drawn attention is the payment of dividends out of past profits. In general, companies will be required to account for Income Tax on all dividends paid after 5th April 1966. Some of these dividends will, naturally, come out of profits made before that date. In general, however, this will not cause any difficulty, because any company which has been in existence for some time will have paid only Corporation Tax on the profits made in the year 1965–66. There is no case for any general provision enabling companies to claim that dividends paid after 5th April, 1966, should be relieved of Income Tax because they have come out of earlier profits which have already borne Income Tax. The reduction in the rate of tax which will be charged on a company's profits under the new system is made possible only by the imposition of a separate charge on dividends; and if there were a transitional period in which little or no tax was payable on dividends, the loss to the Exchequer would be extreme. But there are transitional difficulties which will have to be dealt with in special types of cases; and I shall propose measures designed to give relief in these exceptional cases.