HC Deb 03 June 1965 vol 713 cc2033-53
Mr. Patrick Jenkin

I beg to move Amendment No. 480, in page 52, line 36, to leave out "so resident".

The result of that Division, Sir Samuel, makes it perfectly clear that the process of attrition has begun, and will continue. I have no doubt that the Patronage Secretary has been searching the Crypt, and that the next Division will produce the results of his endeavours.

Clause 44 is the first of the Clauses which are made necessary by and are consequential upon the major change in the whole basis of taxing companies. It deals with the treatment of inter-company dividends. The beauty of the existing system of inter-company dividends can be summed up briefly in the phrase, "once net, always net". Once a company had declared and distributed a dividend and deducted tax from it, in the hands of an inter-company receiving it that dividend was taxed, did not suffer further tax, and could itself form the subject matter of gross dividend and be passed on down the line. That system, to use the Chief Secretary's phrase—with which we on this side are becoming a little tired—was, indeed, simplicity itself.

The change in the basis, which Corporation Tax brings about, makes necessary a very great number of complications to make the new system work. It upsets the straightforward system of inter-company dividends that I have just described, and introduces all sorts of complications that are necessary to avoid the double taxation of dividends against which, in most circumstances, even the present Government seem to have set their face. It requires all sorts of exceptions and exclusions in order to avoid what would be manifest injustices.

The first provision is that there should be credit for the dividend tax suffered by the company against the dividend tax due. The point is that a period of time can elapse—it might be months and months—between the declaration of dividend by a subsidiary company and payment of tax to the revenue, and the time when the parent company declares its own dividend and is allowed as it were, to take credit for the tax deducted and paid over. This is tantamount to an interest-free loan to the revenue. There are, therefore, provisions in the Clause to allow payment of gross in two circumstances—the first, where there is a payment between a parent company and a subsidiary company, and the second, where there is what has been called a consortium company. The conditions are spelt out in subsection (3). It is a welcome innovation to recognise the consortium company as being a body requiring special taxation treatment.

Clearly payment of dividends gross without deduction of tax to an overseas company is inappropriate. Therefore, both payer and payee must remain United Kingdom residents; in other words, both parent and subsidiary must be United Kingdom residents. In the case of a consortium, while the payment of dividends where payment gross is allowed must be made between two United Kingdom companies, it does not necessarily follow that the pre-conditions which must exist to give rise to an election to pay dividends gross mean that all the "parents" of the consortium company should themselves be United Kingdom residents. Why should they all have to be United Kingdom residents? Take the example of the consortium company, of which there are many such in this country, which is owned partly by United Kingdom companies and partly by overseas companies. Why should the dividends which will pass between the United Kingdom consortium company to its United Kingdom parents have to be paid net under deduction of tax merely because part of the partnership arrangement is owned abroad?

The purpose of the Amendment is to alter the situation as it is contained in the Bill and treat a consortium as coming within the terms of the Bill, and therefore open to the election procedure, so far as it affects the consortium company and its United Kingdom parents but leave entirely untouched the situation as between the consortium company and its overseas parents. Dividends in the latter case would continue to have to be paid net under deduction of tax and the tax turned over to the Revenue.

The Amendment would remove the words "so resident" from line 36 and have the effect of removing the restriction that all the parent companies should be United Kingdom residents. A consortium would come within the terms of the subsection and be entitled to make an election, even if one or more of its parents were overseas companies.

I repeat and emphasise one matter, because I do not want to be misunderstood. Dividends passing between the consortium company and the overseas parents would have to continue to be paid net because of the introductory two lines of subsection (3): Where a company receives dividends from another company (both being resident in the United Kingdom)". The Amendment would be entirely within the spirit of the whole subsection as drafted and would remove what could well be regarded as an unnecessary and harsh anomaly.

Partnership companies are an admirable arrangement. There are many of them, where U.K. interests which perhaps have manufacturing resources wish to make use of foreign technical "know-how" and where the foreign company concerned wants a stake in the equity. Therefore, a joint company is set up to exploit the foreign company's "know-how" in the U.K. company's manufacturing resources, to the benefit of all concerned. I have in the past been, though I am not now, the secretary of two such companies, both owner 50–50—half by a U.K. company and half in one case by an American company and in the other case by a Canadian company. If the 50–50 company had been 51–49, 51 per cent. being owned by the U.K. company, it would count as a subsidiary and would be able to declare its dividend to its parent gross. If the other parent had been a U.K. parent, it would then have been a consortium and all the dividends could have been paid gross. Because it was 50–50, under the Bill as it stands all dividends, including the dividends to the U.K. parent, would have to be paid net. This is an unjustifiable discrimination against such companies. Such joint ventures, which have brought this country considerable advantage in the last few years, would be struck at by the Clause if it were not amended.

This is a reasonable Amendment which I hope that the Government will be able to accept. It is entirely within the spirit of the Clause as drafted. It would impose no possibility of tax avoidance on the part of any of the companies concerned.

7.15 p.m.

Mr. John Peyton (Yeovil)

I support the Amendment which has been moved so skilfully by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin). Only yesterday we heard once again from the Chancellor of the Exchequer, as we have heard from his predecessors, a very warm and vigorous statement that the one thing which conditioned this country's future fate was the balance of payments. In the light of that statement, it is curious that some of the organisations which contribute most to a healthy balance of payments should be the special victims of the Bill. I would not seek to suggest that it is done out of malice. I suggest that it is done with a certain lack of understanding in what is an immensely complicated field.

I very much hope that the Treasury Ministers will, between now and Report, think very hard indeed about the consequences of the present provisions of the Corporation Tax for the two British oil companies—Shell and B.P. I ask the Government especially to remember the immense contributions which both companies make to our balance of payments. Shell, in particular, will suffer very heavily from the provisions of this Part of the Bill. If I may say this without incurring your displeasure, Sir Samuel, although the new Amendments tabled by the Chancellor will be of considerable use to B.P. they will do very little to help Shell.

Shell Petroleum is to all intents and purposes a subsidiary of Shell Transport and Trading. Yet, because of a foreign association which I do not think anyone would deny is useful and valuable to this country, the company is denied the facilities given under the Bill in ordinary subsidiary relationships. I think I detected the Minister without Portfolio shaking his head. I am assured that this is the effect at the moment and I hope that the Government will be slow to reject the Amendment even if, as I imagine, the hon. Gentleman thinks that I am wrong in attributing this effect to the Bill.

I support what my hon. Friend said. I very much hope that in this instance, as in others, the Government will look very seriously at it. It is not a matter where political or party prejudice is appropriate. This is a matter of immense importance to this country's future and to the prosperity of an immensely important industry. I hope that the Government will either accept the Amendment now or say that they will table an acceptable Amendment themselves on Report.

Sir Eric Fletcher

I thought that the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) put the case for the Amendment very moderately and capably, and I agree with the hon. Member for Yeovil (Mr. Peyton) when he remarks that we do not want to consider this question in any party spirit.

Some of the adjectives which hon. Members opposite use are quite unjustified. There is no question of making any proposal in this part of the Bill out of malice or with the intention of injuring anybody. It is important to put this matter in its right perspective. It is wrong for hon. Members to talk about the subsection as though it were calculated to penalise anyone. On the contrary, as the hon. Member for Wanstead and Woodford recognised, I think, the introduction of these provisions about consortia are an innovation, a concession, and something which benefits companies as regards franking of a kind which has not previously been part of our fiscal system.

Quite properly, as we are coming to a new aspect of the Bill, the hon. Member for Wanstead and Woodford, by way of preamble, gave us some of the background of Clause 44 before coming to the point of his Amendment. To appreciate the significance of the Amendment, the Committee must appreciate what is done by the Clause. As between parent and wholly owned subsidiary, there is no question of Corporation Tax. They can be grouped. As between parent and subsidiary, provided that they are both residents, they have the benefit of election with regard to Income Tax.

Mr. John M. Temple (City of Chester)

I am sure that the Minister does not wish to mislead the Committee. A moment ago he referred to grouping. Surely, he meant grouping for dividends only in this respect?

Sir Eric Fletcher

My point was this. In the relationship of parent and subsidiary, Corporation Tax is payable by one or the other. In the case of a parent and subsidiary, Income Tax can be payable by either one or the other, according to whether or not election takes place under subsection (3). That right of election, in other words, the right of a parent to collect a dividend gross from its subsidiary, or vice versa, is a concession granted to United Kingdom resident companies. Then, in subsection (3) it is extended to the case of a subsidiary not of one single parent but of a consortium. If all the members of the consortium, that is, all the parents, are United Kingdom companies, there would be no question but that it was appropriate that they should have the right of election and should be able to receive the dividend paid by the subsidiary gross.

We have gone further than that. By paragraph (b) we have provided that if three-quarters or more of the ordinary share capital of the subsidiary company is owned betwen them by five or fewer companies resident in the United Kingdom, then, provided the company receiving the dividend is one of the five and none of them owns less than one-tenth of the capital, it also can have the benefit of the consortium arrangement which would be available if all the parents were United Kingdom companies, and, if that company makes an election, it also can have the dividend paid gross by its subsidiary.

Hon. Members want us to go further. As I understood him, the hon. Member for Wanstead and Woodford wants us to provide that, in the case of any consortium in which there is one resident United Kingdom company, the subsidiary shall be able to pay the dividend gross to the United Kingdom parent but be under an obligation to pay the dividend net to the non-resident parent. I think that I have understood the argument.

The reason we do not feel able to accept the Amendment is this. One has to draw the line somewhere. In the case of a consortium in which, say, 90 per cent. of the share capital was owned by non-U.K. resident Companies and in which 10 per cent. of the share capital of the subsidiary was owned by a United Kingdom resident, it would obviously be inappropriate to regard that as a United Kingdom consortium. If, on the other hand, 75 per cent.—admittedly, it is an arbitrary figure—of the capital of the subsidiary is owned by a United Kingdom company, then we think it reasonable that the benefits of this consortium provision should be extended and they should have the same benefit as though the subsidiary were an entirely owned subsidiary of the United Kingdom company.

There has been reference to the special case of British Petroleum and Shell. I do not think that it would be appropriate at this moment to discuss the special position of those two companies, although we may have an opportunity of doing so later. In conclusion, I point out that, as the hon. Member for Wanstead and Woodford recognised, it cannot really be said that this provision, which is by nature a concession as compared with the present rule, imposes any hardship on those companies which cannot bring themselves within the definition in paragraph (b). They do not suffer any permanent diminution of revenue.

As the hon. Gentleman recognised, it is merely a question of timing. But we feel that once we make any greater inroads on the general principle that dividends should be paid under deduction of Income Tax from one company to another, it will be very difficult to know where to draw the line, and we think that this is a very fair and reasonable compromise in all the circumstances.

Mr. Barber

Is the hon. Gentleman's objection to this proposal, which has obvious advantages for certain consortia, primarily that it would be difficult to administer, or is it that he thinks that it might give rise to some tax avoidance?

Sir Eric Fletcher

I do not myself think that there is any question of tax avoidance here at all.

Mr. Peyton

The hon. Gentleman's only argument so far is that he has got to draw the line somewhere. Let us look at that argument, as seen from these benches. What possible justification can there be for denying an advantage to two companies, which are to all intents and purposes in the relationship of parent and subsidiary, for one reason only, that is, that they are in some association, normally a beneficial association, with a foreign concern? It seems narrow-minded in the extreme.

Sir Eric Fletcher

It is not narrow-minded. There is not the same parental relationship of a wholly owned subsidiary and its parent when the capital of the subsidiary is owned by four or five companies.

Mr. William Clark

Will the Minister give us a direct answer to this question? If the Amendment were accepted, would there be any loss of tax at all? My understanding of it is that there would be no loss of tax to the Revenue. If I may say so, the hon. Gentleman's argument is very weak, particularly in view of what was said by my hon. Friend the Member for Yeovil (Mr. Peyton) about Shell and other oil companies. If there is no loss of tax, why resist the Amendment?

Sir Eric Fletcher

I think that it is obvious that there is no ultimate loss of tax to the Revenue and no ultimate gain of tax to the taxpayer in either event. It is merely a question of timing.

Mr. William Clark

Then do I take it that the Minister is saying that the Amendment is unnecessary and that all the fears entertained by my hon. Friends can be set at rest? He said that it would not be right to look at the question of the oil companies, Shell in particular, presumably. May we take it that we have an assurance from the Government that they intend to look at the position of Shell and to remedy any anomaly which may be thrown up?

Sir Eric Fletcher

I thought that it would be much better to deal with the case of Shell and B.P. when we came to overseas corporations generally, because that is a much bigger subject.

7.30 p.m.

Mr. Barber

I listened with interest to what was said by my hon. Friends the Members for Wanstead and Woodford (Mr. Patrick Jenkin) and for Yeovil (Mr. Peyton), and I agree with the Minister that they put the case extremely clearly. I am very disappointed with the reply which they have received.

Having listened to the discussion, it seems to me, (a) that there is no question of tax avoidance; (b) that there is no question of any loss of taxation quite inadvertently; and (c) that it must be accepted from what my hon. Friends have said that an arrangement of the kind they have proposed would be of advantage to the consortia concerned. If these three conclusions be right, as I think they are, the only serious argument against the Amendment would be on the ground that, in some way or another, it was administratively impossible or nearly impossible. But we have heard no such argument.

The position is most unsatisfactory. If there be arguments against our proposal, we have not heard them stated. In the circumstances, although this may be a matter affecting only a few companies, it is important, and, having received such an unsatisfactory reply, I can only hope that my hon. Friends will divide the Committee.

Question put, That "so resident" stand part of the Clause:—

The Committee proceeded to a Division—

Mr. Frank Allaun (Salford, East) (seated and covered)

I wish to raise a point of order, Sir Samuel. Because of the crush at the entrance to the Division Lobby, I think that several hon. Members, certainly myself, were unable to get into the Lobby before the doors were closed. I wish to make no suggestion of any deliberate blocking of the entry. It was entirely fortuitous. Nevertheless, it did prevent certain hon. Members, and certainly myself, from registering our vote, although we were here in time.

The Deputy-Chairman (Sir Samuel Storey)

I observed no undue crush at the doors. Hon. Members had six minutes to get here, and they should be here in time.

Ayes 276, Noes 272.

Division No. 168.] AYES [7.32 p.m.
Abse, Leo Bence, Cyril Braddock, Mrs. E. M.
Albu, Austen Benn, Rt. Hn. Anthony Wedgwood Bradley, Tom
Alldritt, Walter Bennett, J. (Glasgow, Bridgeton) Bray, Dr. Jeremy
Allen, Scholefield (Crewe) Binns, John Broughton, Dr. A. D. D.
Armstrong, Ernest Bishop, E. S. Brown, Hugh D. (Glasgow, Provan)
Atkinson, Norman Blackburn, F. Buchanan, Richard
Bacon, Miss Alice Blenkinsop, Arthur Butler, Herbert (Hackney, C.)
Bagier, Gordon A. T. Boardman, H. Butler, Mrs. Joyce (Wood Green)
Barnett, Joel Boston, T. G. Carmichael, Neil
Baxter, William Bowden, Rt. Hn. H. W. (Leics S.W.) Carter-Jones, Lewis
Beaney, Alan Boyden, James Castle, Rt. Hn. Barbara
Chapman, Donald Hynd, H. (Accrington) Pearson, Arthur (Pontypridd)
Coleman, Donald Irvine, A. J. (Edge Hill) Peart, Rt. Hn. Fred
Conlan, Bernard Irving, Sydney (Dartford) Pentland, Norman
Corbet, Mrs. Freda Jackson, Colin Perry, Ernest G.
Cousins, Rt. Hn. Frank Jay, Rt. Hn. Douglas Popplewell, Ernest
Craddock, George (Bradford, S.) Jeger, George (Goole) Prentice, R. E.
Crawshaw, Richard Jeger, Mrs.Lena(H'b'n&St.P'cras,S.) Price, J. T. (Westhoughton)
Cronin, John Jenkins, Hugh (Putney) Probert, Arthur
Crosland, Rt. Hn. Anthony Jenkins, Rt. Hn. Roy (Stechford) Pursey, Cmdr. Harry
Cullen, Mrs. Alice Johnson, Carol (Lewisham, S.) Randall, Harry
Dalyell, Tam Johnson,James(K'ston-on-Hull,W.) Rankin, John
Darling, George Jones, Dan (Burnley) Redhead, Edward
Davies, G. Elfed (Rhondda, E.) Jones,Rt.Hn.Sir Elwyn(W.Ham,S.) Rees, Merlyn
Davies, Harold (Leek) Jones, J. Idwal (Wrexham) Reynolds, G. W.
Davies, Ifor (Gower) Jones, T. W. (Merioneth) Rhodes, Geoffrey
Delargy, Hugh Kelley, Richard Richard, Ivor
Dell, Edmund Kenyon, Clifford Roberts, Albert (Normanton)
Dempsey, James Kerr, Mrs. Anne (R'ter & Chatham) Roberts, Goronwy (Caernarvon)
Diamond, John Kerr, Dr. David (W'worth, Central) Robertson, John (Paisley)
Dodds, Norman Lawson, George Rodgers, William (Stockton)
Doig, Peter Leadbitter, Ted Rogers, George (Kensington, N.)
Donnelly, Desmond Ledger, Ron Rose, Paul B.
Driberg, Tom Lee, Rt. Hn. Frederick (Newton) Ross, Rt. Hn. William
Duffy, Dr. A. E. P. Lee, Miss Jennie (Cannock) Rowland, Christopher
Dunn, James A. Lever, Harold (Cheetham) Sheldon, Robert
Dunned, Jack Lewis, Arthur (West Ham, N.) Shinwell, Rt. Hn. E.
Edwards, Rt. Hn. Ness (Caerphilly) Lewis, Ron (Carlisle) Shore, Peter (Stepney)
English, Michael Lipton, Marcus Short,Rt.Hn.E.(N'c't1e-on-Tyne,C.)
Ennals, David Lomas, Kenneth Silkin, John (Deptford)
Ensor, David Loughlin, Charles Silkin, S. C. (Camberwell, Dulwich)
Evans, Albert (Islington, S.W.) Mabon, Dr. J. Dickson Silverman, Julius (Aston)
Evans, Ioan (Birmingham, Yardley) McCann, J. Skeffington, Arthur
Fernyhough, E. MacColl, James Slater, Mrs. Harriet (Stoke, N.)
Finch, Harold (Bedwellty) MacDermot, Niall Slater, Joseph (Sedgefield)
Fitch, Alan (Wigan) McGuire, Michael Small, William
Fletcher, Sir Eric (Islington, E.) McInnes, James Smith, Ellis (Stoke, S.)
Fletcher, Ted (Darlington) McKay, Mrs. Margaret Solomons, Henry
Fletcher, Raymond (Ilkeston) Mackenzie, Gregor (Rutherglen) Soskice, Rt. Hn. Sir Frank
Floud, Bernard Mackie, John (Enfield, E.) Stonehouse, John
Foley, Maurice McLeavy, Frank Stones, William
Foot, Sir Dingle (Ipswich) MacPherson, Malcolm Strauss, Rt. Hn. G. R. (Vauxhall)
Foot, Michael (Ebbw Vale) Mahon, Peter (Preston, S.) Summerskill, Hn. Dr. Shirley
Ford, Ben Mahon, Simon (Bootle) Swain, Thomas
Freeson, Reginald Mallalieu, E. L. (Brigg) Swingler, Stephen
Galpern, Sir Myer Mallalieu,J.P.W.(Huddersfield,E.) Symonds, J. B.
Garrett, W. E. Mapp, Charles Taylor, Bernard (Mansfield)
Garrow, A. Mason, Roy Thomas, George (Cardiff, W.)
Ginsburg, David Mayhew, Christopher Thomas, Iorwerth (Rhondda, W.)
Greenwood, Rt. Hn. Anthony Mellish, Robert Thomson, George (Dundee, E.)
Gregory, Arnold Mendelson, J. J. Thornton, Ernest
Grey, Charles Mikardo, Ian Tinn, James
Griffiths, David (Rother Valley) Millan, Bruce Tomney, Frank
Griffiths, Rt. Hn. James (Llanelly) Miller, Dr. M. S. Tuck, Raphael
Griffiths, Will (M'chester, Exchange) Milne, Edward (Blyth) Urwin, T. W.
Gunter, Rt. Hn. R. J. Molloy, William Varley, Eric G.
Hale, Leslie Monslow, Walter Wainwright, Edwin
Hamilton, James (Bothwell) Morris, Alfred (Wythenshawe) Walden, Brian (All Saints)
Hamilton, William (West Fife) Morris, Charles (Openshaw) Walker, Harold (Doncaster)
Hamling, William (Woolwich, W.) Morris, John (Aberavon) Wallace, George
Harper, Joseph Mulley,Rt.Hn.Frederick(SheffieldPk) Warbey, William
Harrison, Walter (Wakefield) Murray, Albert Watkins, Tudor
Hart, Mrs. Judith Neal, Harold Weitzman, David
Hattersley, Roy Newens, Stan Wells, William (Walsall, N.)
Hazell, Bert Noel-Baker, Francis (Swindon) White, Mrs. Eirene
Healey, Rt. Hn. Denis Noel-Baker,Rt.Hn.Philip(Derby,S.) Whitlock, William
Henderson, Rt. Hn. Arthur Norwood, Christopher Wigg, Rt. Hn. George
Herbison, Rt. Hn. Margaret Oakes, Gordon Wilkins, W. A.
Hill, J. (Midlothian) Ogden, Eric Willey, Rt. Hn. Frederick
Hobden, Dennis (Brighton, K'town) Oram, Albert E. (E. Ham, S.) Williams, Alan (Swansea, W.)
Holman, Percy Orbach, Maurice Williams, Clifford (Abertillery)
Horner, John Orme, Stanley Williams, Mrs. Shirley (Hitchin)
Houghton, Rt. Hn. Douglas Owen, Will Williams, W. T. (Warrington)
Howarth, Harry (Wellingborough) Padley, Walter Willis, George (Edinburgh, E.)
Howarth, Robert L. (Bolton, E.) Page, Derek (King's Lynn) Wilson, Rt. Hn. Harold (Huyton)
Howell, Denis (Small Heath) Paget, R. T. Wilson, William (Coventry, S.)
Howie, W. Palmer, Arthur Winterbottom, R. E.
Hoy, James Pannell, Rt. Hn. Charles Woodburn, Rt. Hn. A.
Hughes, Cledwyn (Anglesey) Pargiter, G. A. Woof, Robert
Hughes, Emrys (S. Ayrshire) Park, Trevor (Derbyshire, S.E.) Wyatt, Woodrow
Hughes, Hector (Aberdeen, N.) Parker, John
Hunter, Adam (Dunfermline) Parkin, B. T. TELLERS FOR THE AYES:
Hunter, A. E. (Feltham) Pavitt, Laurence Mr. Gourlay and Mr. O'Malley.
NOES
Agnew, Commander Sir Peter Fletcher-Cooke, Sir John (S'pton) McLaren, Martin
Alison, Michael (Barkston Ash) Foster, Sir John Maclean, Sir Fitzroy
Allan, Robert (Paddington, S.) Galbraith, Hn. T. G. D. McMaster, Stanley
Allason, James (Hemel Hempstead) Gammans, Lady McNair-Wilson, Patrick
Anstruther-Gray, Rt. Hn. Sir W. Gardner, Edward Maginnis, John E.
Astor, John Gibson-Watt, David Maitland, Sir John
Awdry, Daniel Giles, Rear-Admiral Morgan Marples, Rt. Hn. Ernest
Baker, W. H. K. Gilmour, Ian (Norfolk, Central) Marten, Neil
Balniel, Lord Gilmour, Sir John (East Fife) Maude, Angus
Barber, Rt. Hn. Anthony Glover, Sir Douglas Mawby, Ray
Barlow, Sir John Glyn, Sir Richard Maxwell-Hyslop, R. J.
Batsford, Brian Goodhart, Philip Maydon, Lt.-Cmdr. S. L. C.
Bennett, Sir Frederic (Torquay) Goodhew, Victor Meyer, Sir Anthony
Bennett, Dr. Reginald (Gos & Fhm) Gower, Raymond Mills, Peter (Torrington)
Berry, Hn. Anthony Grant, Anthony Mills, Stratton (Belfast, N.)
Bessell, Peter Grant-Ferris, R. Miscampbell, Norman
Biffen, John Gresham Cooke, R. Mitchell, David
Biggs-Davison, John Grieve, Percy Monro, Hector
Bingham, R. M. Griffiths, Eldon (Bury St. Edmunds) Morgan, W. G.
Birch, Rt. Hn. Nigel Griffiths, Peter (Smethwick) Morrison, Charles (Devizes)
Black, Sir Cyril Grlmond, Rt. Hn. J. Mott-Radclyffe, Sir Charles
Blaker, Peter Gurden, Harold Munro-Lucas-Tooth, Sir Hugh
Bossom, Hn. Clive Hall, John (Wycombe) Murton, Oscar
Bowden, Roderic (Cardigan) Hall-Davis, A. G. F. Neave, Airey
Box, Donald Hamilton, Marquess of (Fermanagh) Nicholls, Sir Harmar
Boyd-Carpenter, Rt. Hn. J. Hamilton, M. (Salisbury) Nicholson, Sir Godfrey
Boyle, Rt. Hn. Sir Edward Harris, Frederic (Croydon, [...].W.) Noble, Rt. Hn. Michael
Braine, Bernard Harris, Reader (Heston) Nugent, Rt. Hn. Sir Richard
Brewis, John Harrison, Brian (Maldon) Onslow, Cranley
Brinton, Sir Tatton Harrison, Col. Sir Harwood (Eye) Orr, Capt. L. P. S.
Bromley-Davenport,Lt.-Col.SirWalter Harvey, Sir Arthur Vere (Macclesf'd) Orr-Ewing, Sir Ian
Brooke, Rt. Hn. Henry Harvey, John (Walthamstow, E.) Osborn, John (Hallam)
Brown, Sir Edward (Bath) Harvie Anderson, Miss Osborne, Sir Cyril (Louth)
Bryan, Paul Hastings, Stephen Page, John (Harrow, W.)
Buchanan-Smith, Alick Hawkins, Paul Page, R. Graham (Crosby)
Buck, Antony Hay, John Pearson, Sir Frank (Clitheroe)
Bullus, Sir Eric Heald, Rt. Hn. Sir Lionel Percival, Ian
Burden, F. A. Heath, Rt. Hn. Edward Peyton, John
Butcher, Sir Herbert Hendry, Forbes Pickthorn, Rt. Hn. Sir Kenneth
Buxton, Ronald Higgins, Terence L. Pike, Miss Mervyn
Campbell, Gordon Hiley, Joseph Pitt, Dame Edith
Carlisle, Mark Hill, J. E. B. (S. Norfolk) Powell, Rt. Hn. J. Enoch
Carr, Rt. Hn. Robert Hirst, Geoffrey Price, David (Eastleigh)
Cary, Sir Robert Hobson, Rt. Hn. Sir John Prior, J. M. L.
Chataway, Christopher Hogg, Rt. Hn. Quintin Pym, Francis
Chichester-Clark, R. Hooson, H. E. Quennell, Miss J. M.
Clark, Henry (Antrim, N.) Hopkins, Alan Ramsden, Rt. Hn. James
Clark, William (Nottingham, S.) Hordern, Peter Redmayne, Rt. Hn. Sir Martin
Clarke, Brig. Terence (Portsmth,W.) Hornby, Richard Rees-Davies, W. R.
Cole, Norman Howard, Hn. G. R. (St. Ives) Renton, Rt. Hn. Sir David
Cooke, Robert Howe, Geoffrey (Bebington) Ridsdale, Julian
Cooper, A. E. Hunt, John (Bromley) Roberts, Sir Peter (Heeley)
Cooper-Key, Sir Neill Iremonger, T. L. Robson Brown, Sir William
Cordle, John Irvine, Bryant Godman (Rye) Rodgers, Sir John (Sevenoaks)
Corfield, F. V. Jenkin, Patrick (Woodford) Roots, William
Costain, A. P. Jennings, J. C. Royle, Anthony
Courtney, Cdr. Anthony Johnson Smith, G. (East Grinstead) Russell, Sir Ronald
Craddock, Sir Beresford (Spelthorne) Johnston, Russell (Inverness) St. John-Stevas, Norman
Crawley, Aldan Jones, Arthur (Northants, S.) Scott-Hopkins, James
Crosthwaite-Eyre, Col. Sir Oliver Jopling, Michael Sharpies, Richard
Crowder, F. P. Joseph, Rt. Hn. Sir Keith Shepherd, William
Cunningham, Sir Knox Kaberry, Sir Donald Smith, Dudley (Br'ntf'd & Chiswick)
Curran, Charles Kerby, Capt. Henry Smyth, Rt. Hn. Brig. Sir John
Currie, G. B. H. Kerr, Sir Hamilton (Cambridge) Spearman, Sir Alexander
Dalkeith, Earl of Kilfedder, James A. Speir, Sir Rupert
Dance, James Kimball, Marcus Stainton, Keith
Davies, Dr. Wyndham (Perry Barr) King, Evelyn (Dorset, S.) Stanley, Hn. Richard
d'Avigdor-Goldsmid, Sir Henry Kirk, Peter Stodart, Anthony
Dean, Paul Lagden, Godfrey Stoddart-Scott, Col. Sir Malcolm
Deedes, Rt. Hn. W. F. Lambton, Viscount Studholme, Sir Henry
Digby, Simon Wingfield Lancaster, Col. C. G. Talbot, John E.
Doughty, Charles Langford-Holt, Sir John Taylor, Sir Charles (Eastbourne)
Douglas-Home, Rt. Hn. Sir Alec Lewis, Kenneth (Rutland) Taylor, Edward M. (G'gow,Cathcart)
Drayson, G. B. Litchfield, Capt. John Taylor, Frank (Moss Side)
du Cann, Rt. Hn. Edward Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield) Teeling, Sir William
Eden, Sir John Lloyd, Ian (P'tsm'th, Langstone) Temple, John M.
Elliot, Capt. Walter (Carshalton) Longbottom, Charles Thatcher, Mrs. Margaret
Elliott, R. W.(N'c'tle-upon-Tyne,N.) Longden, Gilbert Thomas, Sir Leslie (Canterbury)
Eyre, Reginald Loveys, Walter H. Thomas, Rt. Hn. Peter (Conway)
Farr, John Lubbock, Eric Thompson, Sir Richard (Croydon,S.)
Fell, Anthony Lucas, Sir Jocelyn Thorneycroft, Rt. Hn. Peter
Fisher, Nigel McAdden, Sir Stephen Tiley, Arthur (Bradford, W.)
Fletcher-Cooke, Charles (Darwen) Mackenzie, Alasdair (Ross&Crom'ty) Tilney, John (Wavertree)
Turton, Rt. Hn. R. H. Ward, Dame Irene Wood, Rt. Hn. Richard
Tweedsmuir, Lady Weatherill, Bernard Woodhouse, Hn. Christopher
van Straubenzee, W. R. Wells, John (Maidstone) Woodnutt, Mark
Vaughan-Morgan, Rt. Hn. Sir John Whitelaw, William Wylie, N. R.
Vickers, Dame Joan Williams, Sir Rolf Dudley (Exeter) Younger, Hn. George
Walder, David (High Peak) Wills, Sir Gerald (Bridgwater)
Walker, Peter (Worcester) Wilson, Geoffrey (Truro) TELLERS FOR THE NOES:
Walker-Smith, Rt. Hn. Sir Derek Wise, A. R. Mr. MacArthur and Mr. More.
Walters, Dennis Wolrige-Gordon, Patrick

7.45 p.m.

Mr. E. Shinwell (Easington)

On a point of order, Sir Samuel. Will you, in view of the possibility of hon. Members being obstructed, quite accidentally—[Interruption.] I am accustomed to the traditions of the Committee and I am putting a point of order. Will you, Sir Samuel, in view of the possibility, quite fortuitously, of the entrances being obstructed in some way, give directions that there should be no blockage in the entrances of the Division Lobbies?

The Deputy-Chairman

To give a direction of that sort would be somewhat hypothetical, but I hope that hon. Members will see that the entrances are kept clear during a Division.

With the next Amendment, No. 550, we can also take Amendment No. 605, in page 53, line 5, at end insert: Provided that where an election is made under this subsection for the purposes of section 43 of this Act, where the company receiving the dividends to which this subsection applies itself makes a distribution, it shall be treated as having suffered income tax by deduction to the extent that the company paying to it dividends gross has itself suffered income tax by deduction on dividends received. and Amendment No. 635, in line 5, at end insert: (4) Notwithstanding the foregoing provisions of this section where a company paying a dividend is a company to which paragraph (a) or (b) of subsection (3) applies and the company has received franked investment income before paying the dividend, if an election has been made under subsection (3), an amount of the dividend equal to the franked investment income of the company, not previously taken into account, shall be treated as franked investment income of the company receiving the dividend.

Mr. Patrick Jenkin

I beg to move Amendment No. 550, in page 52, line 41, after "received", to insert: or such proportion of them as they may jointly elect". Before explaining the Amendment I cannot forbear from the comment that the Government are obviously getting very jittery and ready with any excuses about their votes.

I must also say I was extremely disappointed—

Mr. Diamond

I think I could not quite have heard what the hon. Member said. Which Amendment did he say the word "jittery" was in?

Mr. Jenkin

If the Chief Secretary thinks that the word "jittery" is in the Bill he has got it badly.

I was very disappointed at the reply of the Minister without Portfolio. I am perfectly certain that he will make amends and try to do better this time. He did not give the impression that he convinced anybody, even himself.

This is a short and technical Amendment and I shall move it extremely briefly. I would remind the Committee that the basic provision for dividends between companies is that dividend from, let us say, a subsidiary to a parent must be paid net after deduction of tax and the tax is accounted for to the Revenue unless the companies jointly elect that the dividend should be paid gross. In those circumstances it can be paid gross. This Amendment is intended to allow the subsidiary and the parent to elect that part of the dividend should be paid gross and that part should be paid net.

The point is that a subsidiary company may itself receive dividends which are franked investment income paid subject to tax. In those circumstances, unless it has itself paid tax on its dividends, it has no means of setting off the tax on the dividends it has received. It pays the whole dividend gross, and there is no way of making use of the very proper provisions contained in this Clause for avoiding the double taxation of dividends.

It seems to me that this is clearly unfair and that the subsidiary company in those circumstances should be entitled, with the parent's consent, so to arrange its affairs that it can take advantage of the arrangements which the Bill allows. The Amendment would achieve this and enable them to elect that part of the dividend should be paid gross and part net.

The Chief Secretary may say, "In those circumstances, why does not the parent say that it will not elect that the whole dividend be paid net and then the subsidiary can take advantage of the provision for avoiding the double taxation of dividends?". This may be inappropriate. The parent company may wish to have the dividend paid gross. It may be a relatively small part of the subsidiary's income which consists of franked investment. In those circumstances, it would be unjust that the whole of the subsidiary's own dividend should be declared net and the tax accounted for to the Revenue merely to allow it to take advantage of the provisions relating to the avoidance of double taxation.

This is a very reasonable point, and I hope that the Government will be a little more forthcoming on it than they were on what my right hon. and hon. Friends and I considered to be the very reasonable Amendment which I moved previously.

Mr. Diamond

I understood, Sir Samuel, that you agreed that we should discuss two other Amendments at the same time. However, that is apparently net for the convenience of the Committee. Therefore, perhaps I could answer the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) on the Amendment which he has moved.

The Deputy-Chairman

The Amendment selected is No. 550. We are discussing with it Amendments Nos. 605 and 635.

Sir John Barlow (Middleton and Prestwich)

I wish to mention Amendment No. 635 very briefly. It is very similar to the Amendment moved by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin).

As the Clause stands, if a subsidiary company receives part of its income in the form of franked investment from other United Kingdom companies and wishes to pay those dividends to its parent company, it is impossible to do so without deduction of tax, and there is no means of recovering that tax. I cannot think that the Chief Secretary or the Chancellor of the Exchequer really meant this. I think that it was an over sight, and I hope that the Chief Secretary will see fit to remedy the situation.

Mr. Diamond

It is not the Government's intention to take a completely inflexible view of any suggestions about machinery and administration, but the proposal put forward by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) is extremely complicated and I doubt whether it could work. His proposal is that an election should be made jointly by parent and subsidiary as regards each dividend received. The proposal in the Bill is that there should be an election made each year. Under normal administration, that is going a long way to meet the administrative convenience of the taxpayer. An election, once made, would last a year, and a change could be made in a year's time and an election made the opposite way.

I understood the hon. Gentleman to say that there should be an election made jointly by parent and subsidiary with regard to each separate dividend. I think that it would be almost impossibly difficult to administer. Therefore, all I can say is that I will promise to consider the matter in connection with the hon. Gentleman's comments. I cannot offer any real hope, but it is right that I should offer to consider it as it is mainly a matter of administration, and we do not want the convenience of the Inland Revenue to be put in advance of the convenience of the taxpayer.

Amendment No. 635 goes too far, because it would allow the income tax borne to be used as relief in respect of losses or of a management claim by the parent company, and that is certainly not intended. We have arrived at a very reasonable halfway house as between franking and non-franking. It is the Opposition's desire that the Corporation Tax should not enable companies to grow fat. That has been made clear from the word go. That is a view with which we on this side of the Committee associate ourselves.

The arrangement made in the Bill goes not an uncomfortable way but a very short way to achieving that, and I should have thought that it was the best possible arrangement. I want to make it perfectly clear that I can hold out no hope about the Amendment in the name of the hon. Member for Middleton and Prestwich (Sir J. Barlow), but I am prepared to look again at the Amendment moved by the hon. Member for Wanstead and Woodford, although I am bound to say that it seems to me that it would be too clumsy, too difficult and too complicated to administer.

Mr. William Clark

Suppose that company A, which is a subsidiary, receives from another company a dividend which it wants to pay over to its parent company B. As I understand the Clause, it is not allowed to use the tax deducted from company C when it pays the dividend to B. Perhaps the Chief Secretary would undertake to look at this anomaly. I am sure that it is not intended by the Clause.

The same anomaly arises in the case of a subsidiary of a life assurence company which in turn receives franked and unfranked investment income. Because it comes from a third source, the grouping arrangement between parent and subsidiary is then lost. It may be that my reading of the Clause is incorrect. If it is, I shall be delighted if the Chief Secretary will correct it. However, if I am right, I hope that he will undertake to put this anomaly right on Report.

Mr. Diamond

It may be that the hon. Gentleman is asking for something for which there is provision already. He has been perfectly straightforward about this point. It is not a simple matter or one on which we should want to jump to conclusions on the basis of a few words spoken by hon. Members on both sides of the Committee. Therefore, I shall undoubtedly look at the points which have been raised between now and Report.

Mr. W. R. van Straubenzee (Wokingham)

I am sure that the Chief Secretary has replied in what he thinks is, and which we accept as, a conciliatory way, but I wonder whether he would consider this point. As I understood his argument, he was attacking not the principle put forward by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), but the difficulty of administration. In turn, he founded that on the difficulty, as he saw it, if the election were made for each declared dividend.

I have not had a chance of considering that matter in relation to the Schedules, but I wonder whether the difficulty is as great as the hon. Gentleman appears to think it is. There would surely be no difficulty if the election were made annually rather than in terms of each individual dividend. I hope that he will look at this point, because it would be of immense benefit for franked income to be set off by the subsidiary to the parent company.

8.0 p.m.

Mr. Barber

As my hon. Friend has just pointed out, the Chief Secretary has been forthcoming. I am sure that he will agree, first, that if it were practical to do something on the lines suggested by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), this would be of considerable advantage to certain companies. I am sure he will also accept that if what my hon. Friend wishes to do could be implemented, it would result in no loss of revenue and would not give rise to tax avoidance.

Therefore, we return to the same issue as before, namely, the extent to which this proposal would be inconvenient, difficult or impractical for the Inland Revenue. I am sure that my hon. Friend the Member for Wanstead and Woodford, who has had considerable experience of these matters, would not wish to press any Amendment too far if it imposed an intolerable burden of work on the Inland Revenue.

The Amendment is a serious one and is put forward responsibly. We wish to consider what the Chief Secretary has said. In the light of our own further investigations, we may wish to return to the matter on Report. Meanwihle, in the light of what has been said, I hope that my hon. Friend will seek leave to withdraw his Amendment.

Mr. Patrick Jenkin

I am happy to withdraw the Amendment. Before doing so, however, I reinforce the point made by my hon. Friend the Member for Wokingham (Mr. van Straubenzee) that there is no suggestion that anything more than the annual election should continue to apply to such proportion of the dividend as is jointly elected, that the provisions of Schedule 11 should apply to this and that the election should remain in force for the year. All those provisions would apply. It does not seem to me that this is a provision which would give rise to such difficulty as to make it impossible to carry it into effect and so relieve companies, in the circumstances which I described earlier, of the risk of the double taxation of their investments. They might be in a position to pay their own dividends gross and have no income against which they can set off tax which has been deducted from the dividends received. Having said that, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.