Where the interest or any part of the interest in any trade or business of any person, being the proprietor thereof or a partner therein, passes by a voluntary disposition inter vivos made by that person or under his will or on his intestacy to the husband or the wife or any lineal descendant of that person, that last-named person shall, for the purposes of Sub-section (3) of Section thirty-eight of the principal Act (which allows a repayment of or set-off against Excess Profits Duty in case of a deficiency or loss), be treated as if he were the person from whom the interest passed.
I beg to move, after the word "any"["any lineal descendant of that person"], to insert the words "ancestor or."
This Amendment is intended to meet the case put to me by the hon. Member for Chelsea (Sir Samuel Hoare), in the course of the Debate in Committee. The hon. Member then pointed out that there would be as much hardship in the cases where property went from the son to the father, in dealing with Excess Profits Duty, as in the cases where it went from the father to the son, where profits had been earned, and excess profits had to be paid in one period, while deficiencies had taken place in a subsequent period. I, accordingly, move this Amendment to meet that difficulty.
I am in some difficulty with regard to the next two Amendments on the Paper, standing in the name of the hon. Member for North East Derbyshire (Mr. Holmes). They seem to me to be a variation of the Amendments proposed by the hon. Member in Committee with the same purpose, but with different methods and different terms. I observe that the discussion of his Amendments in Committee occupies 32 columns of the OFFICIAL REPORT. However, if the hon. Member can show me some difference between these two Amendments and those discussed in Committee, I may be able to call one of them.
I think the most important difference is this. The Chan- cellor of the Exchequer's argument against the acceptance of the Amendments in Committee was that it would cost too much—something like £10,000,000 in one year. Although he recognised the hardship of the case, that was the one ground for his refusing it. My two Amendments, though they differ from one another, both follow one plan. The number of cases in which people who would claim against the Chancellor of the Exchequer would be far less under the present Amendments than under those which I moved in Committee. In the second place, I now propose that any repayment may be made by instalments spread over a period of five years. If the Chancellor of the Exchequer is going to spread his collection of the arrears of Excess Profits Duty over a period of five years, I suggest that the period of repayment should be spread over five years. The charge will be far less in the aggregate, and it will be much less each year, because it will be spread over five years. I hope the Amendments will meet the great objection there is to paying out £10,000,000 in five years, and that you, Sir, will be able to permit me to move either one or the other of them.
I beg to move at the end of the Clause to insert a new Subsection—
(2) Where a change in ownership has taken place which is not provided for under Subsection (1) of this Section the right to reclaim for a deficiency or loss under Section thirty-eight, Sub-section (3), of the Finance (No. 2) Act, 1915, shall exist to the new owner in so far as the persons beneficially interested in the old owner or owners remain beneficially interested in the new owner as provided for hereinafter by this Section, that is to say: —
I need not explain my Amendment as fully as I did on the Committee stage. The reason for the Amendment is that a case was decided in April, 1921, by the House of Lords, in which a man called Gittus, on succeeding to his father's business in which he was previously employed, wished to claim back the Excess Profits Duty which had been paid by his father. This was refused on the ground that he was not the same person. This decision by the House of Lords, which was so unexpected by the business world, inflicted great hardship in many cases. I sought, by an Amendment last year, to reverse this decision. The Chancellor of the Exchequer then met us by saying that he-would endeavour as far as possible to cover the case administratively. Early this year I asked a question as to the method which was being adopted in order to meet these cases administratively, and the Financial Secretary to the Treasury answered that the Inland Revenue sought to meet it if there was substantial identity of interest, and to the extent to which there was substantial identity of interest between the old and the new owner.
One found that in practice that was administered in a very narrow sense. It was thought, when that answer was given in the House, that in this sort of case where there were four partners in a private firm, each having a quarter share in the partnership, who turned their business into a limited liability company, and each held 25 per cent. of the shares, there was substantial identity of interest between the old and the new ownership. In practice, however, nothing of the kind happens. The Inland Revenue say that there is no man in the new company who held more than 25 per cent. of the shares in the old company, and therefore there is no substantial identity of interest between the partners in the firm and the shareholders in the new company. I gave seven or eight other instances in the Committee stage, but I will only mention one now. A company for the purposes of capital, which had a former capital of half a million pounds, formed a new company of two millions. They paid two bonus shares for one to each of the old shareholders, thus absorbing £1,500,000 of the new company. They then asked their shareholders to subscribe share for share for the other £500,000. The shareholders, to the extent of 99 per cent., did so, so that that company remains exactly the same as the old company to the extent of 99 per cent., yet the Inland Revenue say there is no substantial identity of interest, and that no money can be repaid.
In the first place, the Chancellor of the Exchequer refused to reverse the Gittus case last year. That, no doubt, would have cost him many million pounds. Then, in Committee this year, he refused to accept an Amendment which would have met a number of cases, and would have cost him £10,000,000. Now this Amendment will cost a reduced amount—the Solicitor-General says it will cost from £3,000,000 to £10,000,000, spread over five years. The suggestion I make is that where there were four partners holding 25 per cent. each, that is, 100 per cent. of the shares in the old firm and each of those four partners takes 25 per cent. of the shares in the new company, then, having had 100 per cent. in the old and 100 per cent. in the new, they would be entitled to get everything back. But if they had 100 per cent. in the old firm or company, and only 70 per cent. in the new, the proposal under paragraph (1) of my proposed Subsection is that 70 per cent. should be deducted from the 100, leaving 30, and, instead of getting 70 per cent. back, they should get 40 per cent. back. The effect of that would be that, if the old members only held 50 per cent. in the new company, they would have no right to repayment, because from 100 you would take 50, leaving 50, and that would cancel it. This is considerably lcs than was suggested in Committee. It would meet a large number of hard cases. The very fact that there were so many columns in the OFFICIAL REPORT on the Committee-stage, shows that it was a matter in which, I venture to suggest, a large number of the Members of the House took great interest, and very strong pressure was brought to bear upon the Chancellor of the Exchequer. I hope, now that we have got down to something like a minimum of Jive years, at any rate the right hon. Gentleman will be able to do something.
I recognise that the Amendment, as drafted, is well adapted to meet some of the objections which were raised on the part of the Treasury when the original proposals were discussed in Committee, and that the hon. Member has very ingeniously got over some difficulties, but we really cannot accept this Clause. The broad distinction between this and the Clause as it stands in the Bill giving the concession which has been given, where a business passes from father to eon, or from husband to wife, is a concession limited to individuals in that degree of natural relationship. We said quite frankly when we were dealing with the subject before that is was illogical, that it rested on no principle, and that it was only justified as a concession to eases of hardship, where human emotions naturally are aroused. The Amendment under consideration is one which would extend the principle of identity from a man to a company, or from one company to another company, and, indeed, it would go further as a matter of legal interpretation, as I have no doubt is intended by the Mover, to extend even to the case of company amalgamations. The difficulties in practice, even assuming that the Exchequer could afford the concession, would, I am satisfied from, a very close investigation of the matter, be quite insuperable. It is quite easy to imagine cases, such as the case put most suceintly and adroitly by the hon. Mover, where the identity is so complete that it is difficult to deny the reasonableness of such a concession. But the truth of the matter is that, except in one or two exceptional cases of that kind, you get difficulties which make it impossible to draw the line. The duty being one in course of winding up, the Inland Revenue Commissioners have looked upon it with a very kindly eye in hard cases. I do not want to say more than that I think it is generally known that that is so, and that they are trying to give the benefit of the doubt wherever it is possible—an administrative practice about which I do not want to say anything.
Take a couple of illustrations of the kind of complications into which you would get by this. The whole ten our of the Amendment depends upon the possibility of assessing quantitatively the value to the owner who remains pro tan to in the new ownership. How are you going to do that in companies, as we know them, in which there are different types of shares, in which it is very difficult to tell whether to take the money value or the voting power, or the degree of preference as the criterion of effective control, which, after all, must be the measure of value? Take the difference between degrees of preference. Some shareholders are entitled to a fixed dividend only of a cumulative or non-cumulative character, others to a share in profits, some to a share of profits above a certain level, some enjoy advantages in the company, some have voting powers restricted, and some have no voting powers. It is impossible to get any practical working criterion to test the value of the interest which is transmitted or retained. Similarly, the owner ship varies in the company from time to time, from the point of view of members of the company. Shares may change hands. A man may remain for a year after converting his business into a limited company, as the man with a dominating interest. He dies. His executors sell his shares, and they are divided up. All those kinds of difficulties in practice are, I venture to assure the House, as far as I am able to judge, after a rather careful consideration of it, insuperable. For those practical reasons—(1) the amount that it would cost the Exchequer, and (2) the impossibility of fairly working out the proposal in practice, we art obliged to resist the Amendment.
Sir J. HARMOOO-BANNER:
I am quite aware that the Chancellor of the Exchequer cannot grant the relief which has been asked for. It is too large an amount, and also it is rather too complicated. But I must confess I am interested by the Solicitor-General's remark that the concession in the Bill is given out of consideration for tears and family tenderness; and, therefore, while it is tears and family tenderness which have made the concession in this Clause, we cannot extend it further, because tears and family tenderness do not apply to limited companies. My own opinion is that he ought never to have given the Clause at all, but, having given it, we have now learned that if ever we want anything from the Chancellor of the Exchequer we must at once put on an aspect of tears and family tenderness, and then, perhaps, we may get a concession, to which otherwise we are not justly entitled.