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New Clause—(Double Taxation)

Volume 416: debated on Thursday 29 November 1945

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Whether or not arrangements having effect by virtue of Section fifty of this Act have been made and whether or not relief may be claimed under Section twenty-seven of the Finance Act, 1920, by virtue of income tax paid in a Dominion, if it is proved to the satisfaction of the Commissioners of Inland Revenue that income arising or accruing in or received from a foreign country and chargeable under the Income Tax Ants consists in whole or in part of income which has previously been subject to United Kingdom income tax by deduction or otherwise such relief shall be granted in calculating the amount of the income which is chargeable to United Kingdom income tax as may be just to the intent that United Kingdom income tax

shall not be charged more than once on the same income by reason only of changes in the persons beneficially entitled to the income.— [ Sir P. Bennett.]

Brought up, and read the First time.

:I beg to move, "That the Clause be read a Second time."

This new Clause relates to another small point that I would like to have cleared up. It deals with a small question of double taxation. We are all very grateful to the Chancellor, and those who have worked with him, for the progress that has been made in dealing with the question of double taxation relief between this country and America and the Empire, but there remains a strange little injustice which I feel can be dealt with at home without any international or inter-imperial negotiations. There was the old case of Gilbertson v. Ferguson in the House of Lords—

I am sorry; it wasin the Court of Appeal. In that case it was settled by the court that taxation which had been paid once should not be charged again. The case arises when a foreign company owns shares in an English business and the dividend is paid overseas. In due course the holders of shares in the overseas company receive their dividend back.

It has already suffered Income Tax before the dividend went overseas and on its coming back the Income Tax on it is charged again. It was thought that that had been dealt with, but recently the House of Lords, in the case of the Selection Trust v. Dent, could not uphold the earlier decision, and reversed it. I feel that this is a point to which attention has only to be called and the authorities will deal with it. I do not ask that the matter should be dealt with in exactly the form of words in the new Clause, but I would like to know that the Government appreciate the point and will deal with it.

I ventured to interrupt the hon. Member for Edgbaston (Sir P. Bennett) to point out that the case was not in the House of Lords, because if it had been it could not have been overruled subsequently, and the fact that it was overruled, of course, is the whole difficulty. The House of Lords decision did, in fact, in terms overrule the earlier decision. The hon. Gentleman asked for an undertaking. Frankly, the matter is one of very great difficulty. Ever since the case to which he referred was decided in 1881, some allowance has been made, but it has been found necessary progressively to encroach upon that allowance. As the hon. Gentleman knows, the allowance was not given in respect of preference shares, or in respect of interest on mortgages and debentures; nor was it given, in recent years, when the foreign company drew its income from the United Kingdom in the form of dividends. It was given only when the income of the foreign company was income taxed under Schedule D. The whole position was felt to be one of some considerable difficulty.

Nevertheless, the fact does remain that the effect of the House of Lords decision is that an allowance which was previously made is no longer made, because it has been held by the House of Lords that the allowance never should have been made. It is difficult to make the allowance, because whereas it is very easy to know exactly what the method of keeping accounts is in an English company, and the Revenue authorities know very well what the company's profits are, and knows what its trading is, the same thing does not apply to a foreign company in a great many foreign countries. In some foreign countries the position is much easier. The British Revenue authorities are at a disadvantage when they ask themselves, in relation to foreign companies in many foreign countries, whether it can be fairly said the income which they draw from the United Kingdom is the very same income out of which they are paying their dividends to the British taxholder resident in the United Kingdom. The question bristles with a number of complications.

I cannot at this moment give an undertaking such as the hon. Member asks for, but I can assert that the matter is very prominently in the minds of those responsible for dealing with that kind of problem, and they are in fact investigating it to see whether it is feasible, notwithstanding the House of Lords decision, for some sort of allowance to be granted in the kind of circumstances depicted by the hon. Member. That is the only statement I can make, and I cannot give an undertaking in the terms in which the hon. Member asked. I agree that it is a small matter, and it is at present the subject of investigation.

I quite appreciate that this is a difficult little point and that the Inland Revenue authorities must give it consideration and investigation. It is not a thing that we would ask them to run into straight away. I appreciate that they are at a disadvantage in not knowing exactly how the foreign taxing authority deals with any particular packet of income. In spite of that, however difficult it may have been, it has been the position since 1881, and some sort of modus vivendi has been discovered. There has been since then a House of Lords decision which has reversed the position. I hope the fact that the House of Lords decision reversed the previous decision, and therefore upset such arrangements as had existed, will not be taken, as the Solicitor-General's remarks caused me rather to fear it might be taken, as implying that, because the House of Lords has decided that way, Parliament will therefore not do anything about it.

After all, Parliament is able to change the law. The House of Lords interprets what the law is, but this House and the House of Lords can certainly change the law, and as this particular arrangement, even if it was not particularly satisfactory, has existed for so long, and has now by a judicial decision been reversed, there surely is a case why every effort should be made to try and put the position back to as nearly as possible what it should be. If it can be improved, if there are difficulties which can be smoothed out, so much the better; but it is incumbent on the Revenue Department and the Treasury to go into the matter closely. The hon. and learned Gentleman has, to use his own word, "asserted" that it is being investigated. Of course, we accept the assertion, but it does not take things very far. I hoped he would be able to say that this would be one of the things on the list for April. The list is already long and one more item would not do very much harm, but after the assertion he has made perhaps my hon. Friend will realise that the spirit is willing. Of course, if the assertion leads to nothing and we hear nothing more about this matter there will be other opportunities, on the next Finance Bill, to move some such Clause as this, and then, I hope, the hon. and learned Gentleman will give us more satisfaction.

9.0 p.m.

:I should like once more to thank the learned Solicitor-General for the kind way in which he has accepted the suggestion we put forward. I do not quite follow his argument that they would have to trace the dividend and the earning capacity—where the money came from—on the other side, because they have a rough idea of how much money went out from this side to the other, and to that extent they would know that whatever came back would be less by the amount we had sent over there. It is like putting another gallon of petrol into the tank of a car. You cannot trace which particular gallon you are using for any particular journey, but you know that if you have not got the gallon you cannot proceed. I feel the Revenue authorities would not need to worry very much about that point. They would know the amount that went out and the amount that came home. After the offer of the hon. and learned Gentleman to go carefully into the question, I ask leave to withdraw the Clause.

Motion and Clause, by leave, withdrawn.

Before calling upon the hon. Member for Holland with Boston (Mr. Butcher) to move his new Clause (Reduced customs duties on tea) I ought to inform the Committee that I am not proposing to call the new Clause following which stands in the name of himself and the hon. Member for Harwich (Sir J. Stanley Holmes)— (Repeal of Customs duties on foodstuffs and Import Duties Act not to apply to foodstuffs.)