§ 7. No principal company, being itself a subsidiary of another principal company, may give a notice as respects a subsidiary of itself, it and so long as a notice previously given as respects that principal company by that other principal company is in force.
2087§ 8. Subject to the provisions of the next following paragraph, no principal company may give a notice as respects a subsidiary—
- (a) if and so long as a notice previously given as respects that subsidiary by another principal company is in force; or
- (b) if and so long as a notice previously given by that subsidiary as respects a subsidiary of itself is in force.
§ 9. Notwithstanding anything in the last foregoing paragraph, where a notice previously given by a principal company (hereafter referred to as the "first subsidiary") as respects a subsidiary (hereafter referred to as the "second subsidiary") is in force, and both the first subsidiary and the second subsidiary are subsidiaries of another principal company (hereafter referred to as the "first principal company"), the first principal company may give a notice as respects both the first subsidiary and the second subsidiary, but not as respects one or the other alone:
§ Provided that, where a notice previously given by the first subsidiary as respects one or more other subsidiaries besides the second subsidiary is in force, the first principal company may not give a notice under the paragraph unless—
- (a) that other subsidiary or all those other subsidiaries are subsidiaries of the first principal company; and
- (b) the first principal company gives a notice as respects that other subsidiary or all those other subsidiaries as well as the first and second subsidiaries.
§ 10. Where a notice is duly given by the first principal company under the last foregoing paragraph, the notice previously given by the first subsidiary as respects the second subsidiary and any other subsidiary shall cease to be in force.
§ 11. Where a notice is given simultaneously by two or more companies the notice given by such one of them as may be agreed upon between them or, in default of agreement, may be determined by the Board, shall be treated for the purpose of this Part of this Schedule as having been given before the other notice or notices.
§ 12. For the purposes of this Part of this Schedule, the expression "notice" means a notice under Section 50(9)(a) of this Act and a notice duly given under that paragraph by a principal company as respects a subsidiary shall, subject to paragraph 10 of this Schedule be deemed to continue in force so long as the subsidiary continues to be a subsidiary of the principal company.
§ Mr. JenkinI hope that this will be a case of third time lucky. I say that with good reason, because it is quite obvious from the reply which he gave to my first Amendment this afternoon that the Chief Secretary is firmly under the impression that there is already grouping for Corporation Tax purposes. If he studies the OFFICIAL REPORT tomorrow he will 2088 see that I use those words with some justification.
The purpose of the Amendment is to import into the Corporation Tax system the same provisions for grouping which have applied to Profits Tax since 1937. I should make it clear that we are referring to grouping for the purpose of liability to Corporation Tax and that it is not the same point which we were discussing on Clauses 43 and 44 when we considered grouping for the purpose of the withholding tax on distributions.
The Amendment is a direct adaptation of the relevant Section of the Finance Act, 1937, Section 22. I say clearly and freely at the outset that I entirely recognise that the Amendment may not be in a form which the Government can accept and may need many conscquential Amendments. It may not even be suitable as a basic provision to provide for grouping for Corporation Tax purposes. If the hon. Gentleman on behalf of the Government would give an undertaking that this form of grouping could be introduced into the Corporation Tax system, I should be perfectly happy to withdraw the Amendment.
As the Bill is drafted—and I am conscious that I may be dispelling misconceptions in the hon. Gentleman's mind—where there is a group of companies, parent and subsidiaries, each company is to be separately assessed and separately charged for Corporation Tax purposes. The only point at which their existence as a group is relevant to determine their liability for tax is in the provision that we have discussed under Clause 44 for giving notice of election for the payment of dividends gross.
This appears to me to ignore a fundamental reality about such groups of companies, namely, that these groups are under a common control, that they follow a unified policy, that they are often administered as a single entity, and that the existence of separate companies within the group is for reasons of convenience, to allow the holding of property in different parts of the country, to allow specific trades to have their own separate accounts made up, and so on. It has hitherto always been a feature of our tax legislation that we recognised this basic fact about the grouping of companies, that where they are all under a 2089 common control they ought to be treated as a single basis.
Under Profits Tax, on giving notice of election under section 22 of the Finance Act, 1937, it is possible to ensure that the profits of all the companies are charged as one, and it is possible to make sure that losses on one are set off against profits on the other, and so on. There are all sorts of reasons why this can be of great convenience, and if it is ignored, if the tax system does not take account of this fact about the organisation of groups of companies, considerable hardship will result.
I should like to give one example of the sort of hardship that can result as a consequence of the change in the pattern of taxation which is being brought about by Part IV of the Bill. Let us imagine that there is a parent company which does not carry on a trade, but which merely holds shares in a subsidiary. Let us suppose that the subsidiary is carrying on a trade with which it makes a profit, but the parent company, which is the company in which the public are interested, has to pay a substantial amount of debenture interest.
We have not come to Clause 48, but the hon. Gentleman will be aware that under that Clause debenture interest and other annual payments are able to be set off as deductions against the profits of an enterprise before arriving at the profits which are chargeable to Corporation Tax. If there is a case where it is the subsidiary company which is carrying on the trade which gives rise to profits which are chargeable to Corporation Tax, and the parent company is the company which has to pay the debenture interest, if there is no grouping provision, the result is that the subsidiary pays its Corporation Tax without making any deduction for the debenture interest because that is not chargeable to itself but to its parent. The result is that if a dividend is paid from a subsidiary to the parent it is out of the net dividend that the whole debenture interest has to be paid.
As I understand the Bill, there is no provision for setting off the tax that has to be deducted, withheld, and paid over on the debenture interest from the tax which is being charged by deduction when the dividend is declared. This 2090 flows directly from the absence of any comparable group procedure for Corporation Tax as has applied since 1937 for Profits Tax.
It is not only in cases of debenture interest that this sort of thing arises. It may be the case that a parent company has management expenses, but it has no other income chargeable to Corporation Tax against which its management expenses can be set, because the only income of the group of companies, on the facts as I have stated them, is from the subsidiary, and that subsidiary can make no deduction from its profits, before charging them to Corporation Tax, for the expenses which the parent company has to bear.
9.45 p.m.
The Minister without Portfolio is looking extremely puzzled. I hope that I am making myself clear. These points are not easy to explain. I do not deal with these matters every day of the week, but I believe that I have put forward a sound argument and I hope that I have made it clear. I should also point out that I have taken an example where the subsidiary company has trading profits and the parent has charges, such as debenture interest or management expenses. It could happen the other way round. It could be the subsidiary company which has tc pay interest—perhaps mortgage interest on property it owns—which does not make any profits which are chargeable to Profits Tax, whereas the parent company has carried on trade which is taxable, and yet cannot set off the charges paid by its subsidiary.
The purpose of the Amendment is to set this anomaly right. I gained the impression from something which the Minister without Portfolio said earlier that he thought that this provision was already contained in this part of the Bill. I assure him that it is not. The purpose of the Amendment is to bring into this part of the Bill the provision for grouping profits and losses of groups of companies so that they may be charged Corporation Tax together, as one entity.
The Chief Secretary will confirm that the grouping provisions have worked well and smoothly so far in connection with Profits Tax. They have given rise to no difficulties so far as I am aware, although they have been amended from time to 2091 time. They have not led to any avoidance of taxation. On the other hand, they have allowed the taxation of groups of companies fairly to reflect the net position of the whole group, so that losses in one company can be set off against profits in another, and all the various other adjustments to which I have referred can be made.
It may be that the Amendment is not of itself sufficient to achieve what we want. I have great interest in Amendment No. 621, because it is a much more sophisticated Amendment, which carries the matter a good deal further, and goes into much greater detail. I bow in amazement to the skill and draftsmanship which my hon. Friend the Member for the City of Chester (Mr. Temple) and my other, hon. Friends have brought to the task.
It will be apparent to the Committee that there are some differences of substance between my Amendment and that of my hon. Friend. Particularly, his Amendment is confined to cases where the parent and the subsidiary are carrying on the same trade, and also where the parent company holds 95 per cent. of the shares in the subsidiary. My Amendment follows exactly the pattern in respect of Profits Tax, where these restrictions do not apply. There may be some reason why the Profits Tax system cannot be imported into the Corporation Tax procedure, but I cannot see what it is.
There may be some exaggerated fears like those which have been displayed already on the other side of the Committee about the possibilities of avoidance and it may be that the Amendment of my hon. Friend the Member for the City of Chester—
§ The ChairmanOrder. I hope that the hon. Member will not be tempted to discuss the Amendment of his hon. Friend to Clause 50.
§ Mr. JenkinI was merely mentioning the Amendment as I understand that it is being taken with this one.
§ The ChairmanI am so sorry. My apologies.
§ Mr. JenkinIf the principle of grouping is accepted, as I sincerely hope it 2092 will be, as it is a very reasonable principle, I should be happy to withdraw my Amendment in favour of that of my hon. Friend, or we may both be persuaded to withdraw our Amendments in the hope that the Government will bring forward a new and comprehensive provision to introduce grouping into the Corporation Tax.
It is a matter of natural justice that groups of companies which are under a common management and which are run as single entities should be allowed to treat themselves, for taxation purposes, as though they were a single entity and that they should not be penalised for adopting—for good reasons of convenience—the pattern of putting their operations into separate companies. This is sometimes done for management purposes, so that a single manager can be in charge of a single company and can make up his own mind, with the result that he can say, at the end of the day, exactly what his results are.
This is done for perfectly sound technical management reasons. It is unfortunate that the introduction of this Corporation Tax, in leaving—as it does so far—any provision for grouping of these companies together, could penalise companies which adopt that practice. It is in hopes that the strength of this case will have been borne in upon the Government that I move the Amendment.
§ The ChairmanWith this Amendment, we are taking, as I have just been reminded, Amendments Nos. 621 and 620.
§ Mr. TempleMy hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) began by saying that he did not deal with these matters every day of the week. After listening to him for a while, I can congratulate him on having lost his amateur status a long time ago.
I was a little disappointed that you stopped him, Dr. King, a little short of explaining my Amendments, which he described as being more sophisticated than his own. This would have saved me a good deal of time. They are slightly more tightly drawn than those which he has been explaining to the Committee. I should like to congratulate my hon. Friend on this wonderful exposition of 2093 a matter which is apparently puzzling some hon. Members. This is the second time which I have spoken during the course of this Committee stage when speeches from this side of the Committee which have been most extremely well explained, have got the Treasury Bench extremely puzzled.
I should like to explain that there are certain differences in the Amendments which stand in my name and those in the name of my hon. Friend. My Amendments are actually considerably longer and, in fact, incorporate what I think is the longest Schedule on the Notice Paper, but they are comparatively comprehensible in that they are all extraordinarily well-precedented in previous legislation. My hon. Friend congratulated me on the drafting. I must admit that I have lifited the entire Schedule from the 1938 Finance Act. There are certain differences and the basic one is, as my hon. Friend briefly mentioned, that my Amendment seeks to limit the scope of this matter to companies which are engaged in the same trade or business, and also limits it to subsidiary companies which are 95 per cent owned.
We have to bear in mind here the recommendations of the Millard Tucker Committee which sat after the 1937 Finance Act and my Amendments are drawn having regard to their recommendations.
My hon. Friend the Member for Wanstead and Woodford mentioned that there are very respectable precedents for seeking that a parent company should be able to have a group assessment for Corporation Tax and those precedents are contained, with regard to Profits Tax, in the 1937 and 1938 Finance Acts. The Minister without Portfolio, if he is to reply to this particular debate, indicated in a previous debate that group assessments were covered under Clause 44(3) of this Bill. I pointed out that Clause 44(3) deals entirely with dividend transfers. The Minister may seek to say that this group assessment has been made under Schedule 12, which deals with transfers within a group. The Minister may further seek to say that this question of group assessments may be dealt with under Section 20 of the Finance Act, 1953.
I have taken advice on all those points and I understand that group assessments for Corporation Tax purposes does not 2094 actually come within the ambit of any of the three provisions to which I have referred. This is a matter of great importance for groups of companies, particularly insurance companies, who have been grouping themselves together for many purposes recently, for rationalisation and for pooling their particular types of business.
I can assure the Minister without Portfolio that there is not the slightest intention on the part of either my hon. Friend or myself, in moving these Amendments, to promote any tax avoidance whatsoever, nor is there the slightest intention that the companies concerned should pay less tax.
Our objectives are purely to simplify matters from an accounting point of view within a group of companies. Further, we hope to simplify matters from the Inland Revenue's point of view, because it is far easier for one inspector of taxes to deal with group assessment rather than having to deal with individual assessments for Corporation Tax purposes of many individual companies within that group. I understand that the objective of the Government is to modernise our tax system. If these Amendments are not acceded to, we shall have a much more complex and incomprehensible tax system than we have at present. My Amendments have been most carefully thought out, as my hon. Friend pointed out, and they cover all the loopholes that could have been foreseen, because they incorporate the procedure adopted in the 1938 Finance Act to stop up those loopholes which appeared in the 1937 Finance Act.
These particular procedures for Profits Tax have stood the test of time and, therefore, I think that one can recommend them for dealing with Corporation Tax in exactly the same way. Corporation Tax as I see it, is a tax of first instance in the same way as Profits Tax was a tax of first instance. Therefore, it should be dealt with in the same way. I believe that the proposals I am putting forward will be very much welcomed by all professional men, whether in the Inland Revenue or whether dealing with the complex matter of presenting group accounts for a major group of companies.
I hope that we have convinced the Minister without Portfolio that our Amendments are reasonable and that they will be in the interests of more effective 2095 administration of company accounting. I hope very much, therefore, that they will be looked upon with great favour.
§ 10.0 p.m.
§ Mr. TilneyI support the remarks of my hon. Friend the Member for the City of Chester (Mr. Temple), who explained Amendments No. 621 and 620 with such clarity.
I have the honour to represent a Liverpool constituency. In the past, Liverpool has been a major centre of insurance, and it still is to some extent. From this great insurance business many invisible exports and much investment have accrued to the British economy. I urge the Minister without Portfolio to bear in mind that, although many insurance companies have merged in recent years, some of them have formed an association by which they put their business into a pool and from it achieved worth-while economies, particularly when dealing with underwriting risks.
I hope that the Minister will look at the Amendment favourably.
§ Mr. Michael Hamilton (Salisbury)My hon. Friends have made a modest plea, so modest that I am sure that the Minister without Portfolio will feel disposed to accept the Amendment.
With Profits Tax the parent company of a group can, if it wishes, have a group assessment. It seems only sensible that, with Corporation Tax, the same option should be available to it. My hon. Friend the Member for the City of Chester (Mr. Temple) mentioned the insurance industry—in which I should, perhaps, declare a personal interest—and in that industry many businesses pool their business centrally and at the end of the year divide the profits among the several companies.
§ Mr. Harold LeverWould the hon. Gentleman explain how this group of Amendments would help businesses to pool their business in this way and fragment it between different companies overseas?
§ Mr. HamiltonBy separating the risk.
§ Mr. LeverI should still like to know how the Amendments would help companies which pool their business with a number of others overseas, since the 2096 Amendments are designed to cover the tax position of their own subsidiaries.
§ Mr. HamiltonThe Amendments are concerned with companies based within the United Kingdom. That is the purpose of them.
The insurance company of which I have personal experience had its 245th annual meeting yesterday. That is quite a long life. I mention it because inevitably when a company has been in being for some years it collects a large family of companies. That has happened in this, as in many similar cases. When a new company comes into the fold the first thought must be integration; to bring it in in every respect, the closer the better. This results in a sharing of premises, rationalisation of systems, a sharing of computer time and so on. This unification is absolutely essential to economy and successful working.
The Clause as drafted does not enable companies to operate in the most economic way possible by allowing them to be taxed as a group. For this reason, I support what my hon. Friend the Member for the City of Chester described with such clarity and I beg the Minister without Portfolio to give this matter real consideration. It is not asking for a large concession. It is a common-sense request and I hope that he will see it in that light.
§ Sir Eric FletcherThe hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) proposed the Amendment with his usual masterly lucidity and dealt with a complicated subject in a way which made it intelligible to all hon. Members. I am afraid that he must have misunderstood something which I said in an earlier debate. I should like to disabuse him at once because I say emphatically that I did not say or ever think that group assessment for Corporation Tax purposes was a feature of the Bill. The hon. Member argues that there should be group assessment. I have listened carefully to his arguments, and those of his hon. Friends, but I think that they have overstated the case in favour of group assessment for Corporation Tax purposes.
It is not the case, according to my information—although I confess that I am probably not as well informed about 2097 the opinion of all accountants as the hon. Member opposite—that all accountants and the Inland Revenue would welcome group assessments. The Inland Revenue feels that there are very considerable, disadvantages, and that it would be much better that the companies in a group should be separately assessed. That being so, I should indicate what are the disadvantages of group assessment.
As I have said on other occasions, we do not want to draw any analogy with what was appropriate in the case of Profits Tax and argue that the same thing should apply to Corporation Tax. It is part of the basic philosophy of this part of the Bill that we are getting rid of both Profits Tax and Income Tax for corporations, and introducing a new, separate Corporation Tax to which different principles shall apply.
These are some of the disadvantages of group treatment. First of all, it ignores the position of minority shareholders. Minority shareholders, perhaps preference shareholders, and perhaps ordinary shareholders, have an interest in the separate tax treatment of their own company, and may well feel themselves at a disadvantage under a system that automatically links up the tax treatment of their company with that of a group in which their interest is, at most, indirect. It will be appreciated that a group election would need to he permanent.
One hon. Member opposite has already referred to the observations of the Tucker Committee, so perhaps I may quote what that Committee said about group treatment. Paragraph 291 states:
It must also be borne in mind that whatever conditions might be laid down for inclusion in a group there would frequently be cases of companies coming into or leaving a group. It would also be necessary to ensure that the provisions could not be made use of for avoidance purposes.I appreciate, of course, that the hon. Member for the City of Chester (Mr. Temple) has tried to circumvent that difficulty to which the Tucker Report drew attention.Again, and I think that this is at least as important as any of the other arguments that can be used against group assessment, practical experience shows that group provision for Profits Tax leads to very considerable delays. Obviously, 2098 it facilitates the collection of revenue—which, in future, will be in the form of Corporation Tax—if each separate company makes up its accounts and has its liability for Corporation Tax assessed as soon as possible, rather than having to wait till all the units in a group have completed their accounts—and one would have to wait for the slowest and most laggard—before group accounts can be prepared and Corporation Tax calculated and paid. Therefore, there is a definite Inland Revenue interest in not having group assessments.
Having said that, we think that we have met most of the principal practical points raised by hon. Members by the provisions in the Bill for subventions as between one company and another. We think that that provides a much more flexible method. I must, therefore, advise my right hon. and hon. Friends to resist the Amendment if it is pressed.
§ Mr. William ClarkThat is a disappointing reply. The whole of the Minister's reply was based on the fact that the concession asked for would be mandatory. All we are asking is that the election should be optional. In addition to the excellent résumé given by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), may I give the Minister a simple example of group assessments. Suppose there is a subsidiary company which is a trading company. Suppose it has a holding company. There may be many trading companies, but suppose there is a holding company.
For the sake of simplicity, suppose there is one subsidiary company trading and one holding company purely taking the profits from the subsidiary. The subsidiary company with a profit of £100 pays Corporation Tax at £40. It is left with £60 which it can pass on to the holding company. The holding company may have a debenture interest or other allowable charge of, say, £25, which is paid out of the £60. It is left with £35. This means that the allowable charges which should have been allowed against Corporation Tax have been lost. Instead of paying what should be, under my formula, £30 Corporation Tax, the two companies have paid £40 Corporation Tax.
2099 It is nothing to do with the operation of Profits Tax. I ask the Minister to reconsider this. My hon. Friend the Member for Salisbury (Mr. Michael Hamilton) brought out the point that this is especially important in the insurance world, which is not a fragmented business, as was alleged by the hon. Member for Manchester, Cheetham (Mr. Harold Lever). In the insurance world there is a group of companies. Some of them insure one type of risk. Others insure another type of risk. For the purpose of underwriting, there is a group of companies. There has always been a group assessment of those companies.
My hon. Friends are not asking for any reduction in Corporation Tax for the group. All they are asking is that, in considering the income of the group, only 40 per cent. should be paid. If the Minister would like me again to give my example, the £100 profit made by the subsidiary would be passed straight on to the holding company. The holding company will not be allowed to charge the allowable charges. If the allowable charges have been incurred by the subsidiary company, the Revenue would have got only £30. This is the burden of my hon. Friends' argument. I cannot see why the Minister should be so inflexible.
The Chief Secretary has great experience of accountancy matters. This is an accountancy as well as a fiscal point. I urge the Minister without Portfolio to reconsider this. He said that his experience in industry was that people do not like group assessments. This is not the case in the insurance world, which is very worried about this problem. If the Minister cannot give an immediate reply, would he at least undertake to reconsider this, because there cannot be any suggestion that in the imposition of Corporation Tax—forgetting its merits and demerits for the moment—there is any intention of the Government's penalising any business at all, in the sense of its being penalised more now than it was under the previous grouping arrangement or whatever it may have been.
Will the Minister give an assurance that he will at least look at it again, because there is a serious anomaly here? There will be a disadvantage to companies in a group where the allowable expenses for 2100 Corporation Tax are incurred by company B whereas the income arises in company A.
§ 10.15 p.m.
§ Mr. Harold LeverI, too, hope that the Minister will look at it again, and I excuse myself in advance by saying that this is not in any way a matter of party politics. It is a matter of simple business sense and good tax administration. Let us take the points one by one, because this is a question of great importance for a great number of companies and for the Inland Revenue itself.
Industry prefers group treatment. Obviously, a group of companies usually likes group treatment. In any case, nobody forces them to group if they do not want to. We are asking that they may elect to be treated as a group. This is the common sense of trading. If people trade in a number of companies because it suits them to do so, especially in the insurance world, why on earth should they not be treated as one whole, as though all the business had been done by one company?
No injustice could result. What persuades me, prima facie, that no injustice to anyone could result is that precisely this arrangement has prevailed for years in relation to the Profits Tax. It is no use my hon. Friend telling me that there is no analogy with the Profits Tax. There is an analogy between grouping for Profits Tax, grouping for Income Tax and grouping for any tax related to the income for companies. True, Profits Tax was at a lower rate than the Corporation Tax will be, but, surely, we are not to suppose that grouping would have been allowed to prevail for Profits Tax for so many years unless it worked efficiently and fairly to aggregate the profits and losses of a group of companies in a practical manner, neither too much tax nor too little being charged.
Although my hon. Friend may say that there is no analogy with the Profits Tax, there is every analogy in terms of system and practicality of administration in grouping for Profits Tax which has worked perfectly well for years. Just because we happen to be changing from Profits Tax to Corporation Tax, there is no reason why we should take this 2101 opportunity to abolish the grouping system unless there are real disadvantages in its continuance.
What are the disadvantages? First, ray hon. Friend says that it ignores the position of minority shareholders. That can be disposed of in a sentence or two. Most of these companies have not got any minority shareholders and, if they have, they would probably be prepared to consent. So the Minister should not come as a self-appointed defender of minority shareholders who, in fact, would think that they were being oppressed by his defence if he were to say, "We insist on denying you group treatment, and we are defending you, the minority shareholders, who really do not want to be defended and who, generally, speaking, do not exist".
Therefore, we can make light work of the Minister's first point about minority shareholders. I am sorry to keep saying that this is not a party point. It is purely a matter of good sense. There is a simple remedy, if the Minister is concerned riot to wreak injustice on minority shareholders. Incidentally, the Revenue seems to have worn the burden very lightly on its shoulders over the years in relation to Profits Tax because, although there may be no analogy between the two taxes, there is a direct analogy between the two systems. As I say, if minority shareholders are likely to be oppressed, they must have been oppressed for many years, though at 15 per cent. instead of 40 per cent.
§ Mr. TempleMay I draw attention to the fact that my Amendment actually covers 95 per cent. owned companies? The 5 per cent. is the odd shareholder who has got lost.
§ Mr. LeverIf my hon. Friend wants to avoid the thought of wreaking injustice on the 5 per cent., by all means let him avoid it, but let him not work a Sodom arid Gomorrah in reverse, as it were, condemning the whole city for the five villainous minority shareholders. Let him make a stipulation that the minority shareholders must consent, or even that there must be 100 per cent.
Next, almost as though it were a devastating threat to our peace of mind, he said that, if we allowed this proposal to take effect, the election must be permanent. I do not know why it must be permanent. 2102 It was not permanent in the non-analogous Profits Tax in the past. I do not see why it should be permanent in this case. But be it so. Let the Minister stipulate, if he likes, "You must be wedded until death do you part"—and companies die only when they are liquidated. So that second reason does not seem overwhelming.
Next, my hon. Friend says that the Millard Tucker Committee—that magical name—says that there is a lot of coming and going in groups. I do not know what mysterious fear this is supposed to arouse. If there is anything in the point, do not group the companies which come and go, but group those which do not come and go. I cannot see why groups which have been maintained in more or less the same company situation for half a century or more should be penalised because other groups have members which come and go. Let this be applied only to the groups without the coming and going. There should be no difficulty here.
When all these arguments are seen to be insubstantial, in come two favourite arguments. One is avoidance. What avoidance is not specified. I must be told what conceivable avoidance there would be if there were effective grouping in a perfectly sensible system. I favour the Corporation Tax, and I suspect that it is here that my hon. Friends are going a little astray. They do not realise how good they are. They are changing from a bad system to a good system when they change to Corporation Tax. But what they are afraid of is that, under their good system, they will get the same kind of avoidances if they allow grouping. Racking my brains, I cannot see how it could happen if one grouped under a sensible Corporation Tax the profits of a group of companies or subsidiaries wholly owned. So avoidance does not frighten me. Even if it did, the Committee would be entitled to have confided to it the kind of avoidances which might occur, not merely a general assertion that some avoidance might occur with grouping.
Then again, my hon. Friend says that it would be a terrible thing because there would be a less active member of the group, a laggard member, which would deliver its accounts late and the group accounts could not be made up. The short answer to that is that separate 2103 group accounts could be made up within a period. There are other and substantial objections to this, but if my hon. Friend is right, and I do not want him to have any anxiety about that, let him put some words into the Clause or into the Amendment to say that any laggard who delays should be penalised by losing group election. It is as simple as that.
As to subventions, it is no answer to businesses and their advisers, accountants, lawyers, directors, that they can get the result they want in a way in which they do not want to have it.
In a concluding sentence, I would say to my right hon. and hon. Friends that it would pay them and pay the Inland Revenue to increase the co-operation and mutual trust which exists between taxpayers and the Inland Revenue, and one of the ways to increase it is by conveniencing them whenever that can be done in a reasonable way. This seems to me to be an eminently reasonable one, and I urge my hon. Friend, who has been so moderate, and willing to listen to arguments on these matters, to look at this again.
§ Mr. Patrick JenkinI wonder whether I could add, to the very forceful arguments which we have had from the hon. Member for Manchester, Cheetham (Mr. Harold Lever), if, indeed, I may be so rash as to enter them, and to take again some of the points made by the Minister without Portfolio. They really do not hold water at all.
The argument that accountants do not like grouping for Profits Tax is sheer moonshine, if I may say so with respect. If the Minister has any doubt whatever I ask him to consider the remarks of his hon. Friend the Member for Heywood and Royton (Mr. Barnett), whose remarks on previous Clauses of the Bill have interested the Committee. I think that he would find that his hon. Friend would share the view of myself and my hon. Friends on this matter—that grouping is something which those who have to administer group companies very much want to have.
As to the argument about the preparation of accounts, I was very much intrigued by the suggestion which the hon. Member for Cheetham brought forward. This seems to be one way of surmounting the 2104 difficulty, but surely the real answer to this is that groups of companies have to make up their accounts, anyway, in a reasonable time, in order to send printed accounts to the shareholders in time for the annual general meeting. Indeed, some of the major companies in the country now are doing this in an astonishingly short time.
The Chairman of I.C.I., Mr. Paul Chambers, at the last annual general meeting, himself referred to this, and I think that his staff deserves a pat on the back for having got the accounts to the shareholders within six weeks of the end of the financial year, for that was no mean achievement. I really cannot believe that the holding up of accounts is really an argument against grouping.
The Minister without Portfolio suggested that the provisions in the Bill for subvention payments were adequate, I would point out to him that though they are useful on occasion they are a bone of contention with accountants, who regard them as a confounded nuisance, because it is not until they have made up the accounts and find out what the position of the companies in the group is that, they make up the books to pay the subventions over. That is much more difficult than working out Corporation Tax for a group. Subvention payments have their uses, but are really a poor substitute for grouping.
Finally, I must express considerable disappointment that the Minister without Portfolio made no mention at all of the very real cases where hardship arises because of the absence of grouping. The Bill makes no provision for that sort of case and it is a very real drawback that it does not, because it will mean that companies will have substantially to modify, often at great inconvenience and possibly some cost, their company structure arrangements and adapt themselves to this tax which the Chief Secretary is never tired of telling us is simplicity in itself; not only simplicity, but, on occasions, injustice.
It seems to me that this is one of the ways in which we can modify the provisions which are written into the Bill and abolish some of the injustices which arise where things have worked perfectly fairly for decades under the taxes which the Bill is replacing.
2105 I certainly hope that the Government will have another look at this Amendment about grouping, because it seems to me that it would be a very great advantage.
Mr. van StranbenzeeI think that this is such an important matter that we really ought not just to pass the Clause without considering it seriously a little further, because whatever the Minister without Portfolio may say—I say this in no personal sense at all—I think that if he would look at what he said earlier in our discussions this afternoon he will find that his words are at least capable of the interpretation which my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) put upon them. It is for that reason that we on these benches picked up so quickly the points made earlier and so clearly explained by my hon. Friend.
I suppose that it can be said that there is an advantage in the discussion of this Amendment that the particular point made by the Minister, or thought to have been made by the Minister, has been cleared. I suppose that one can say that it is an advantage, but I thought that the Minister rested his case far too much upon objections which he believed to be in existence on the part of the professional advisers of these various groups of companies. I hope that he has had time for consultation about this, especially in view of the blistering attack made on this aspect of the matter by his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever).
What I think the Minister has not had an opportunity of appreciating fully is that this is an optional procedure. There is no intention, if I may so loosely express it, of forcing it down the throats of the groups of companies concerned. In spite of what he said earlier—and this is a point made perfectly clear, and brought out very clearly, by the hon. Member for Cheetham—surely it is true that the procedure hitherto worked extraordinarily well, and very beneficially, on the whole, to individual companies. The Minister has had an opportunity for second thoughts, and it is much to be hoped that in the interests of groups he will feel able to say that in view of the weighty arguments which have been adduced from both sides of the Committee and in view of the voluntary nature of the procedure, 2106 he feels that this is something which he can safely take back and look at again.
§ Mr. BarberThis has been a most unsatisfactory debate. After all, I think the whole Committee must agree that until this debate began we had made extraordinarily good progress thoughout today. All our debates have been businesslike and sensible. On occasions we have had to divide against the Government's proposals, and on other occasions Government spokesmen have said that they would look into a particular point.
I cannot understand the attitude of the Treasury Bench to this proposal. Indeed, when one considers all the speeches which have been made, including that of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), they have all been quite clear that here is something which ought to be done in the interests of sound business administration. This is all we are asking for. Here is an opportunity for the Labour Government to show at long last that they are pro-business. But no, they threw the opportunity away.
If the Minister without Portfolio a quarter on an hour ago had only said that he would look at this proposal again, we could have disposed of this matter without a Division. We could have got on and could have been well on the way towards concluding our labours for the day. But we have had this extraordinarily rigid attitude. It is not as though the hon. Gentleman was sitting there alone. He has the Financial Secretary with him for consultation. He had the Chief Secretary with him, and even the Prime Minister popped in a moment ago to see what was going on. But no consultations took place.
I shall not weary the Committee by going over all the arguments, but I would say just this. Apart from the fact that the whole weight of the speeches has been in favour of the Amendments, it is also the case that all the arguments from the Minister without Portfolio against the proposal were based, as one of my hon. Friends said, on the assumption that this grouping arrangement was to be mandatory, whereas all we are asking is that a group of companies should have the option to be assessed in this particular way. In this respect, it is no good the Minister continuing to say "Oh, 2107 well, we are doing away with Profits Tax. Therefore, anything concerned with Profits Tax is not relevant to Corporation Tax." The truth is that the simile is exact. The grouping arrangements for Profits Tax, as far as I know, have worked perfectly well and there is no reason to think that the same principle should not be applied to Corporation Tax.
None of the hon. Gentleman's arguments were at all convincing in the light of the very sensible and moderate arguments of my hon. Friends. Certainly there is not a member of the Committee who has spoken in support of the Minister, and in those circumstances it must be obvious to the whole Committee, even to those who have not spoken, that the only decent and sensible thing to do is to divide the Committee.
§ Mr. Joel Barnett (Heywood and Royton)I cannot understand the attitude of my hon. Friend the Minister without Portfolio. I do not wish to give any joy to hon. Members opposite, but this is not a party political matter. I should have thought that there were so many arguments for group accounting as against separate accountancy that my hon. Friend would have appreciated the
§ point. From an economic point of view, from an efficiency point of view, from an accountancy point of view—from every conceivable point of view that I can think of—I would prefer to see group accounting. I should have thought that most people dealing with them would have preferred to see the preparation of accounts on a group basis.
§ I cannot understand talk about this as a means of tax avoidance, because there are much greater loopholes for avoidance by the use of separate accountancy procedures than by group accountancy. It is better to take a look at a set of accounts of a group of companies if only for the benefit of people who do not understand separate accounts—and there are a "few" people who do not understand even the way in which the most efficient sets of accounts are prepared.
§ Group accountancy is something which we should encourage. I should have thought that this was a proposal which my hon. Friend could accept, and I hope that he will look at it again.
§ Question put, That those words be there added:—
§ The Committee divided: Ayes 164, Noes 172.
2109| Division No. 170.] | AYES | [10.36 p.m. |
| Alison, Michael (Barkston Ash) | Cooper, A. E. | Hamilton, M. (Salisbury) |
| Allan, Robert (Paddington, S.) | Corfield, F. V. | Harris, Reader (Heston) |
| Allason, James (Hemel Hempstead) | Craddock, Sir Beresford (Spelthorne) | Harrison, Brian (Maldon) |
| Awdry, Daniel | Crawley, Aidan | Harvey, John (Walthamstow, E.) |
| Baker, W. H. K. | Crowder, F. P. | Harvie Anderson, Miss |
| Barber, Rt. Hon. Anthony | Curran, Charles | Hastings, Stephen |
| Barlow, Sir John | Dance, James | Hawkins, Paul |
| Batsford, Brian | Davies, Dr. Wyndham (Perry Barr) | Hay, John |
| Bennett, Dr. Reginald (Gos & Fhm) | d'Avigdor-Goldsmid, Sir Henry | Heald, Rt. Hn. Sir Lionel |
| Berry, Hn. Anthony | Dean, Paul | Heath, Rt. Hn. Edward |
| Bessell, Peter | Deedes, Rt. Hn, W. F. | Higgins, Terence L. |
| Biffen, John | Douglas-Home, Rt. Hn. Sir Alec | Hill, J. E. B. (S. Norfolk) |
| Biggs-Davison, John | Drayson, G. B. | Hirst, Geoffrey |
| Birch, Rt. Hn. Nigel | Eden, Sir John | Hobson, Rt. Hn. Sir John |
| Black, Sir Cyril | Elliott, R. W.(N'c'tle-upon-Tyne,N.) | Hogg, Rt. Hn. Quintin |
| Bowen, Roderic (Cardigan) | Eyre, Reginald | Hooson, H. E. |
| Box, Donald | Fell, Anthony | Hopkins, Alan |
| Boyd-Carpenter, Rt. Hn. J. | Foster, Sir John | Hordern, Peter |
| Boyle, Rt. Hn. Sir Edward | Fraser, Ian (Plymouth, Sutton) | Howe, Geoffrey (Bebington) |
| Braine, Bernard | Gammans, Lady | Hunt, John (Bromley) |
| Brinton, Sir Tatton | Gardner, Edward | Iremonger, T. L. |
| Bromley-Davenport,Lt.-Col.Sir Walter | Gibson-Watt, David | Irvine, Bryant Godman (Rye) |
| Brooke, Rt. Hn. Henry | Giles, Rear-Admiral Morgan | Jenkin, Patrick (Woodford) |
| Bruce-Gardyne, J. | Gilmour, Sir John (East Fife) | Johnson Smith, G. (East Grinstead) |
| Buck, Antony | Glover, Sir Douglas | Johnston, Russell (Inverness) |
| Butcher, Sir Herbert | Goodhart, Philip | Kimball, Marcus |
| Buxton, Ronald | Goodhew, Victor | Kirk, Peter |
| Campbell, Gordon | Grant, Anthony | Lancaster, Col. C. G. |
| Carlisle, Mark | Grant-Ferris, R. | Langford-Holt, Sir John |
| Carr, Rt. Hn. Robert | Gresham Cooke, R. | Lewis, Kenneth (Rutland) |
| Chataway, Christopher | Grieve, Percy | Litchfield, Capt. John |
| Chichester-Clark, R. | Griffiths, Eldon (Bury St. Edmunds) | Longbottom, Charles |
| Clark, Henry (Antrim, N.) | Griffiths, Peter (Smethwick) | Longden, Gilbert |
| Clark, William (Nottingham, S.) | Curden, Harold | Loveys, Walter H. |
| Clarke, Brig. Terence (Portsmth, W.) | Hall, John (Wycombe) | Lubbock, Eric |
| Cooke, Robert | Hall-Davis, A. G. F. | Mackenzie, Alasdair (Ross&Crom'ty) |
| McLaren, Martin | Pitt, Dame Edith | Thompson, Sir Richard (Croydon,S.) |
| McMaster, Stanley | Price, David (Eastleigh) | Thorpe, Jeremy |
| Mawby, Ray | Pym, Francis | Turton, Rt. Hn. R. H. |
| Maxwell-Hyslop, R. J. | Quenneli, Miss J. M. | van Straubenzee, W. R. |
| Meyer, Sir Anthony | Redmayne, Rt. Hn. Sir Martin | Vaughan-Morgan, Rt. Hn. Sir John |
| Mitchell, David | Rees-Davies, W. R. | Vickers, Dame Joan |
| More, Jasper | Renton, Rt. Hn. Sir David | Walder, David (High Peak) |
| Morrison, Charles (Devizes) | Ridsdale, Julian | Walker, Peter (Worcester) |
| Munro-Lucas-Tooth, Sir Hugh | Roberts, Sir Peter (Heeley) | Ward, Dame Irene |
| Neave, Airey | Russell, Sir Ronald | Weatherill, Bernard |
| Nicholls, Sir Harmar | Scott-Hopkins, James | Wells, John (Maidstone) |
| Nicholson, Sir Godfrey | Sharples, Richard | Whitelaw, William |
| Noble, Rt. Hn. Michael | Shepherd, William | Wills, Sir Gerald (Bridgwater) |
| Onslow, Cranley | Sinclair, Sir George | Wise, A. R. |
| Page, John (Harrow, W.) | Stanley, Hn. Richard | Wood, Rt. Hn. Richard |
| Page, R. Graham (Crosby) | Stoddart-Scott, Col. Sir Malcolm | Younger, Hn. George |
| Pearson, Sir Frank (Clitheroe) | Talbot, John E. | |
| Percival, Ian | Taylor, Sir Charles (Eastbourne) | TELLERS FOR THE AYES: |
| Peyton, John | Taylor, Frank (Moss Side) | Mr. MacArthur and |
| Pickthorn, Rt. Hn. Sir Kenneth | Teeling, Sir William | Mr. Dudley Smith. |
| NOES | ||
| Abse, Leo | Hamling, William (Woolwich, W.) | Paget, R. T. |
| Albu, Austen | Harper, Joseph | Palmer, Arthur |
| Allaun, Frank (Salford, E.) | Hattersley, Roy | Pargiter, G. A. |
| Alldritt, Walter | Hazell, Bert | Parkin, B. T. |
| Allen, Scholefield (Crewe) | Hobden, Dennis (Brighton, K'town) | Pavitt, Laurence |
| Armstrong, Ernest | Holman, Percy | Pearson, Arthur (Pontypridd) |
| Atkinson, Norman | Horner, John | Peart, Rt. Hn. Fred |
| Bacon, Miss Alice | Houghton, Rt. Hn. Douglas | Pentland, Norman |
| Bagier, Gordon A. T. | Howarth, Harry (Wellingborough) | Perry, Ernest G. |
| Barnett, Joel | Howell, Denis (Small Heath) | Prentice, R. E. |
| Benn, Rt. Hn. Anthony Wedgwood | Hughes, Emrys (S. Ayrshire) | Pursey, Cmdr. Harry |
| Bishop, E. S. | Hunter, A. E. (Feltham) | Redhead, Edward |
| Boston, T. G. | Hynd, H. (Accrington) | Rees, Merlyn |
| Boyden, James | Irvine, A. J. (Edge Hill) | Reynolds, G. W. |
| Braddock, Mrs. E. M. | Irving, Sydney (Dartford) | Rhodes, Geoffrey |
| Bradley, Tom | Jeger, George (Goole) | Richard, Ivor |
| Bray, Dr. Jeremy | Jeger,Mrs.Lena(H'b'n&St.P'cras,S.) | Roberts, Albert (Normanton) |
| Brown, Hugh D. (Glasgow, Provan) | Jenkins, Hugh (Putney) | Rodgers, William (Stockton) |
| Buchanan, Richard | Johnson, Carol (Lewisham, S.) | Rogers, George (Kensington, N.) |
| Butler, Herbert (Hackney, C.) | Johnson,James(K'ston-on-Hull,W.) | Rose, Paul B. |
| Butler, Mrs. Joyce (Wood Green) | Jones, Dan (Burnley) | Rowland, Christopher |
| Callaghan, Rt. Hn. James | Jones,Rt.Hn.Sir Elwyn(W.Ham,S.) | Shore, Peter (Stepney) |
| Carmichael, Neil | Jones, J. Idwal (Wrexham) | Short,Rt.Hn.E.(N'c'tle-on-Tyne,C) |
| Carter-Jones, Lewis | Jones, T. W. (Merioneth) | Silkin, John (Deptford) |
| Chapman, Donald | Kellcy, Richard | Silkin, S. C. (Camberwell, Dulwich) |
| Corbet, Mrs. Freda | Kenyon, Clifford | Silverman, Julius (Aston) |
| Crawshaw, Richard | Kerr, Mrs. Anne (R'ter Chatham) | Skeffington, Arthur |
| Cronin, John | Kerr, Dr. David (W'worth, Central) | Slater, Mrs. Harriet (Stoke, N.) |
| Crosland, Rt. Hn. Anthony | Ledger, Ron | Small, William |
| Dalyell, Tam | Lee, Miss Jennie (Cannock) | Smith, Ellis (Stoke, S.) |
| Darling, George | Lever, Harold (Cheetham) | Storehouse, John |
| Davies, Harold (Leek) | Lipton, Marcus | Strauss, Rt. Hn. G. R. (Vauxhall) |
| Davies, Ifor (Gower) | Lomas, Kenneth | Summerskill, Hn. Dr. Shirley |
| Dell, Edmund | Loughlin, Charles | Swingler, Stephen |
| Diamond, John | McCann, J, | Taylor, Bernard (Mansfield) |
| Dodds, Norman | MacColl, James | Thomas, George (Cardiff, W.) |
| Donnelly, Desmond | Mclnnes, James | Thomas, Iorwerth (Rhondda, W.) |
| Driberg, Tom | Mackie, John (Enfield, E.) | Thornton, Ernest |
| Duffy, Dr. A. E. P. | Mallalieu,J.P.W.(Huddersfieia,E.) | Tinn, James |
| Dunnett, Jack | Mason, Roy | Tuck, Raphael |
| English, Michael | Mayhew, Christopher | Varley, Eric G. |
| Ensor, David | Mellish, Robert | Wainwright, Edwin |
| Evans, Albert (Islington, S.W.) | Mikardo, Ian | Walden, Brian (All Saints) |
| Evans, Ioan (Birmingham, Yardley) | Mitlan, Bruce | Walker, Harold (Doncaster) |
| Fletcher, Sir Eric (Islington, E.) | Molloy, William | Wallace, George |
| Fletcher, Ted (Darlington) | Monslow, Walter | Watkins, Tudor |
| Fletcher, Raymond (Ilkeston) | Morris, Alfred (Wythenshawe) | Weitzman, David |
| Floud, Bernard | Morris, John (Aberavon) | Wells, William (Walsall, N.) |
| Foley, Maurice | Mulley,Rt.Hn.Frederick(SheffieldPk) | White, Mrs. Eirene |
| Foot, Sir Dingle (Ipswich) | Murray, Albert | Whitlock, William |
| Freeson, Reginald | Newens, Stan | Wigg, Rt. Hn. George |
| Galpern, Sir Myer | Noel-Baker, Francis (Swindon) | Wilkins, W. A. |
| Ginsburg, David | Norwood, Christopher | Williams, Mrs. Shirley (Hitchin) |
| Gourlay, Harry | Ogden, Eric | Williams, W. T. (Warrington) |
| Gregory, Arnold | O'Malley, Brian | Wilson, Rt. Hn. Harold (Huyton) |
| Grey, Charles | Oram, Albert E. (E. Ham, S.) | Wyatt, Woodrow |
| Gunter, Rt, Hn. R. J. | Orme, Stanley | |
| Hale, Leslie | Page, Derek (King's Lynn) | TELLERS FOR THE NOES: |
| Mr. Fitch and Mr. Howie. |
§ Question proposed, That the Clause stand part of the Bill.
§ 10.45 p.m.
§ Mr. McMasterSir Harry—[Laughter.]
§ The Temporary Chairman (Sir Harry Legge-Bourke)Order. I must ask the Committee to allow the hon. Member who has been called by the Chair to be heard.
§ Mr. Ivor Richard (Barons Court)On a point of order. Is it in order for the hon. Gentleman to frighten us so badly?
§ The ChairmanI am afraid that the remark of the hon. Member was not audible to the Chair.
§ Mr. McMasterI apologise to hon. Members if I do frighten them. The Amendment designed to alleviate the effect of the Bill on shipping did not receive a favourable reception from the Minister without Portfolio. Now that the Chancellor of the Exchequer and the Minister of Shipping are here, I ask them to put their heads together, because they have shown within the past week that they have some sympathy with the position of shipowners.
Clause 47(1) provides that Corporation Tax is payable on profits which are earned abroad and which cannot be remitted to this country. Would the Chancellor consider amending the Clause on Report so that the same provisions apply in respect of the Clause as apply in respect of Clause 36? Shipowners earn their profits all over the world. In certain places they are not able to remit the profits to Britain. It has been accepted in relation to Clause 36 that capital gains which cannot be remitted to this country should not be subject to Capital Gains Tax. The same provision might well be extended to apply to Corporation Tax when profits earned abroad cannot be remitted to this country.
§ Mr. William ClarkAs I read subsection 3(c), the effect will be to cause the end of an accounting period if any trade within the group is discontinued or commenced. This obviously cannot be the object of the subsection. It would have a far-reaching effect if the cessation of 2112 any part of a trade carried on by a company—it may have four or five different trades—stopped one of those trades, and changed the accounting period. From an accountancy and fiscal point of view, this would have a detrimental effect on the company accounting of many companies. I should like the Chancellor to assure us on this point now, or to bring the matter back on Report.
§ Sir Eric FletcherThis is a highly technical point, and I certainly undertake to consider it between now and Report.
With regard to the observations of the hon. Member for Belfast, East (Mr. McMaster), I am not sure whether he was here when I spoke, but I thought that I gave a sympathetic reply to the representations that were made by the hon. Lady the Member for Tynemouth (Dame Irene Ward) and other hon. Members on behalf of the shipping industry. The Government are most anxious to help the shipping industry in every way they can, and we are considering whether anything can be done within the context and framework of this Bill in that regard.
§ Question put and agreed to.
§ Clause ordered to stand part of the Bill.