New Clause. — (Tax in Arrear by Reason of Exchange Restrictions.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 28th May 1952.

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Photo of Lieut-Commander Peter Smithers Lieut-Commander Peter Smithers , Winchester 12:00 am, 28th May 1952

I support this Clause because it seems to me that the practice of the Revenue authorities is inequitable and doing real harm to our trade, particularly in the markets where we sell manufactured goods. Apparently the view of the Revenue is that when profits are earned in a foreign currency, even if they cannot be collected by the body which earns them, nevertheless they are part of the income of that body, and ought to bear tax.

From what has been said by my hon. Friend the Member for Truro (Mr. G. Wilson) it will be apparent to the Committee that one arrives at a position where a company may be earning money, say in Brazil, which it is unable to send home to this country in the form of profit: therefore, it must use up its resources in this country to pay tax while piling up useless money in Brazil. As a result it soon finds itself without working capital. That is not only inequitable to the people who are entitled to their fair share of the profits, but it also must have a very bad effect upon our trade.

If we look at the pattern of trade in Latin America, to which this Clause is especially directed, we see our principal markets are the Argentine and Brazil. It is those two countries which restrict the sending home of profits, the Argentine to 5 per cent., and in Brazil to 8 per cent. of the nominal capital. Therefore, a quite serious blow is dealt to our trade with those countries. The Inland Revenue say, "We examine every case on its merits, and in hard cases we make allowances." But the practice of the authorities has rendered that concession valueless, because what in fact they do is to wait until there is little prospect of collecting any more revenue at all and then make the concession.

Naturally, by that time the company concerned is in serious difficulty when it comes to competing with foreign companies. If one looks at the pattern of trade in Latin America, one sees that whereas most countries are increasing their sale of manufactured articles—Germany, for example, on a great scale, and the United States and other European countries—Britain lost 10 per cent. of the volume of her exports to Latin American countries last year. One of the principal reasons for that is because British firms are not able to offer credit terms in the Latin American market comparable with those which can be offered by more fortunately placed foreign competitors.

The object of this Clause is to make it mandatory to the authorities to collect tax only on those profits which can be remitted to this country and to satisfy themselves as to the genuineness of the difficulty which confronts the company in question. While, on the one hand, equity is aimed at and the Clause is designed to assist our traders in competing with their foreign rivals, on the other hand a safeguard is provided which requires the authorities to use the machinery at their command to satisfy themselves that abuse is not taking place