Clause 19. — (Interest Payable Abroad to Be Deductible in Computing Profits in Certain Cases.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 23 June 1949.

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Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East 12:00, 23 June 1949

This is, I feel, rather an unreasonable Amendment. It is one thing to say that capital which is raised by borrowing abroad should have the relief which is provided for in this Clause. It seems to me, at any rate, that it is very far from that to say that when there are two or three partners, one of whom is a foreign resident and is paid interest by the partners here, they should be entitled to be placed in the same position as a company which for various reasons has to raise part of its money in the foreign money market. The two situations are entirely dissimilar. After all, the partner is a co-owner of the firm's business.

I ask the Committee to reject this Amendment, not from the narrow legalistive view, but from the general view that it is not the sort of thing contemplated at all. Where a number of persons really own the same business and some of them are paying interest to one resident abroad—never mind what it is for—that is a situation which is utterly different from the sort of situation we are contemplating here. One can well understand that in some cases it might create a real temptation to try and evade the law and create an excessive payment by manipulation of the partnership business. I am quite conscious of the fact that the Amendment concludes with the words: … shall not exceed an amount which the Commissioners having jurisdiction in the matter may consider a reasonable rate. … At the same time I think it is placing an almost impossible burden on the Commissioners to expect them to investigate the affairs of a partnership business in every case with a view to determining in every case what is a reasonable rate of interest. There might be cases where it was somewhat over the reasonable rate, although it could not be said to be out-and-out excessive. One would get all sorts of gradations, and to put upon the Commissioners, in the case of a claim for interest, the burden of nicely discriminating where the exact reasonable line arose would put a too excessive burden upon them.

I ask the Committee to say that this relief is granted for a very particular case, that is, where a company has to raise money on a foreign money market, and in which it should have the same measure of relief as if it raised it here. This ought not to be extended to an area which is different and in which, if it did so extend, there might be some temptation on the part of dishonest partners—or partners at any rate open to be influenced by facts of that kind—to charge rather too high a rate of interest, when it would not be possible in all circumstances for the Commissioners to go into the whole matter and say exactly what is a reasonable interest to be charged. For those general reasons, and because this is not the kind of thing which the Clause is intended to cover, I hope that the Committee will agree that the Amendment ought not to be accepted.