The next Amendment which is selected is No. 94. Sir Henry d'Avigdor-Goldsmid.

Mr. J. T. Price:

On a point of order. You have given the number of the next selected Amendment, Sir Samuel. May I draw your attention to the fact that the Amendment Paper is not printed in serial order? It starts with Amendments Nos. 45 and 49 and then goes to No. 94. I understand the reason for this. It is because of the different times at which Amendments have been tabled. It would, however, greatly assist the Committee if you could state not only the number of the Amendment, but the page of the Amendment Paper. It is difficult to find Amendments unless one knows where they are.

It is Amendment No. 94, to Clause 15, and it appears on page 2937.

I beg to move Amendment No. 94, in page 13, line 45, at the end, to insert: (3) For the purposes of the provisions of the Income Tax Acts mentioned in subsection (1) of this section a company shall be deemed to control, directly or indirectly, not less than one-quarter of the voting power in another company if a third company having such control also controls, directly or indirectly, not less than one-half of the voting power in the first-mentioned company. The Clause is generally welcome to industry, particularly to companies having interests abroad, because it provides that a company which controls, directly or indirectly, not less than one-quarter of the voting power in the company paying the dividend can take into account in calculating double taxation relief any foreign tax paid by the latter in respect of its profits.

The difficulty which arises, and towards remedying which the Amendment is put forward, is that companies which have subsidiaries abroad may, for reasons of local taxation, have to vest the owner- ship of the subsidiary in a company specially created for the purpose. They may, therefore, not actually comply with the wording of the Bill, but they are clearly meant to enjoy the relief which the Clause provides.

To give an example of a case in which the parent company controls 20 per cent. and a subsidiary of the parent company controls 20 per cent. of the voting power in the foreign company, as the Bill is drafted the relief would be obtained only in respect of the parent company's 20 per cent. holding. That is not the intention of the Clause.

I do not pretend that the precise form of the Amendment commends itself to the Government draftsman, but I hope that my hon. Friend the Financial Secretary to the Treasury will accept the principle as being fair. The Amendment simply draws attention to a defect in the wording of the Clause which, I hope, my hon. Friend will be able to remedy at a later stage.

6.30 p.m.

I can assure my hon. Friend that, having looked into this as carefully as I can, I see no objection to the spirit and intention of his Amendment. I think that it is probably carrying as far as it is wise to carry this form of relief. However, I am happy to assure him that I accept the spirit and intention. I should like to make sure of the drafting, for it is very necessary to do that, and if my hon Friend will be good enough to withdraw the Amendment I will ensure that the words are checked.

In view of that, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

I rather dislike this Clause and would like to hear the Government's reasons for introducing it. So that we may not waste time discussing some matter which is not in my mind, I will tell the hon. Gentleman what is in my mind.

I think control has usually been recognised as meaning possession of at least 50 per cent. of the shares in some form or another. We are now asked to accept 25 per cent. It will be said, I dare say, that under modern conditions 25 per cent. is good enough. If that is to be the case, I suppose that two people can have control, each having 30 per cent.—or even three people. This seems to have some rather odd possible results. I should have felt that in a matter of this kind it was much safer to keep to the usual 50 per cent., and if one proposed to reduce the figure, at any rate have some check on the cases in which it is allowed; that is to say, make it a condition that there should be specific approval or something of that sort. Even so, I would much rather keep to the original—I say "original", but it is not invariably so; perhaps I should say "the usual original"—stipulation that control means at least half the share capital of the company.

Perhaps the hon. Gentleman would be kind enough to deal with that. There are really two points. One point is, why are we leaving the 50 per cent. basis for the new basis? The second point is, have the Government considered the implications of more than one person or company having control of another?

I am glad that the hon. and learned Gentleman has raised this point. I think that the principle of allowing relief for underlying tax was disturbing to the Labour Party on a previous occasion. Perhaps I may start at this point, because I hope that it will make it clearer to the Committee. I think that what hon. Gentlemen opposite were saying originally, though they have not done so today, was that it is very much better to rely on double taxation agreements and to go for those. I think that is a fair statement of what the Opposition would prefer.

I would also prefer to have double taxation agreements, and I agree on that straightaway. But, as a matter of practice, such agreements often take a long time to negotiate, often through no fault of the overseas country with which one negotiates. For a very poor, developing country, a double taxation agreement may not always be very attractive to negotiate. Meantime, there is the plain fact of companies which have large share ownerships or in some cases total share ownerships overseas, and so do not want to wait for the negotiation of double taxation agreements. This brings us up to date on the arguments deployed last year.

It has increasingly tended to be the case that British companies or British individuals invest overseas in new enterprise with foreign partners—this is a statement of fact and I am not arguing against it—in a situation where under the Laws of the foreign country they are not permitted to own 50 per cent. of the equity and in some cases must own much less. In such circumstances it is not desirable to discourage the British investor—particularly if it is a developing country, because it would be of assistance to the economy of that country to have the investment made—by putting him under some rather special penalty because relief is not available for underlying tax.

If the figure is kept at 50 per cent., as it is now, and the Treasury gives special exemptions—this is the second thought put to me by the hon. and learned Gentleman—it is all rather cumbersome. I am not saying that it is impossible, but it is rather cumbersome. The Chancellor has come to the conclusion, after a good deal of experience over these things, that it would make sense to reduce below 50 per cent., down to 25 per cent. as a general rule, and that we shall suffer no administrative or real fiscal penalties if we do so. On the other hand, we shall, in fact, make it rather easier for new investments to go on being made since one of the disincentives to making them will have been removed. An administrative difficulty will have been removed as well. In terms of the experience that we have had, it makes common sense, we think, to enlarge the bounds in this way.

I must tell the hon. Gentleman that his reply, although, as usual, attractive in manner and almost, but not quite, persuasive in substance, is wholly unsatisfactory. To start with, he has not dealt with the point that I put to him about more than one company having control, and I will now give way while he does so.

I beg the hon and learned Gentleman's pardon. We do not expect any problem about that at all. I will explain why in this way. We would agree that if it were an individual shareholder owing a true minority interest—I start again with an extreme because I believe that it will be more illustrative; let us say an individual shareholder owning only 2 per cent. of the shares of the overseas company—it might well be very difficult for him to obtain the information he would need in order to get any benefit from the Clause. But if it is a company with a substantial shareholding—and 25 per cent. is substantial—or if it is, under the terms of the suggested Amendment, a company within a group of companies, we feel confident that with its own technical resources and with such a large share of the investment overseas—this would apply whether there were one or two companies concerned—it would have little difficulty in getting the information needed to substantiate a claim to relief under the Clause.

So we have looked at the situation where more than one company might be involved and have come firmly to the conclusion that because they have the resources to look after themselves—whereas an individual with a small holding might not have—we do not believe that there will be any difficulties.

I do not want to continue to be difficult, but I am afraid that that answer is equally unsatisfactory. Let me make perfectly clear what I mean. We are not really in Hampton Court maze; we are in some fiscal provisions, and these relate to companies which are supposed to have control of other companies. The point is that if they have 50 per cent. or more of the shares, then they have control, but if one can have three companies having the control now proposed by this Clause, then one is putting forward what anybody but the Government or Treasury would say was an entirely bogus proposition.

One cannot have three people having control of the same thing, unless they happen to agree, and, so far as I can see, that is what this Clause provides. I do not ask the hon. Gentleman to drop the Clause now. One would not want to divide the Committee against it until he has had an opportunity to consider the points which have been raised, and I hope that he will give an undertaking that he will do that.

Let me go a little further. It is said that under the Laws of some foreign countries one cannot have more than 50 per cent. of the shares. If that is the position—and I accept it if the hon. Gentleman tells me that that is so—and one has to form a subsidiary company for the purpose, then, no doubt, perhaps with the assistance of the Amendment which has been accepted, the matter is simple.

There are, however, other alternatives. Suppose, for instance, that there are three partners concerned who differ. Partners do not always agree. I am talking in a loose sense of three companies. What happens then? Who has control of the company? Are we right in basing a fiscal concession on what is really an entirely bogus idea? I think that that is the reason why in the past, in almost every case, control has been kept to a 50 per cent. or larger holding. But this is not control, and I am the more frightened about it because I seem to remember that there is, in fact, provision for the Treasury to give consent in cases where a smaller percentage is held. That is right, is it not?

Yes; it depends on the circumstances.

As long as there is such a provision, what is the sense of doing this? One can meet any hard cases by exercising discretionary powers instead of telling a sort of statutory lie, and I should have thought that it was very much better to do so.

If the hon. Gentleman wants to cover this particular case, I suggest that instead of putting in a general provision of this sort, which is misleading, and, I think, rather dangerous, it would be very much better to amend the Clause to meet the particular point which he wants to cover. That point is the case of foreign countries—no doubt particularly developing countries—where a 50 per cent. or 51 per cent. interest is not allowed to a foreigner. I understand the difficulty about it. All that is happening is that the Treasury is being very naughty. It is telling a lie because it is too lazy to exercise its discretionary powers. Or perhaps I should say that it is making the Bill tell a lie because it is too lazy to exercise those powers.

However repulsive the hon. Gentleman may think my language, I entreat him to consider what in my opinion is a real and dangerous point, and to give an undertaking that he will reconsider this matter. I think that we shall want to return to it at a later stage of the Bill to try, with our clumsy hands, and without the skilled assistance of Treasury draftsmen, to meet the facts of the case instead of opening the stable door rather too wide to taxpayers.

I think that there might be some small misunderstanding here. The point really is to give the shareholder the opportunity of getting the information on which to claim relief. We are satisfied that if a company holds 25 per cent. of another company it will have the power, the authority, to extract the information which it requires to lodge its claim for relief from the underlying tax paid by that other company.

6.45 p.m.

If there are two companies, one with 20 per cent. and one with 30 per cent., we are even more satisfied that there will not arise the possibility of them quarrelling over the matter. They will have a common interest in the matter. They will both want to lodge a claim in this country for relief from tax. The two of them combined will have a general interest.

Of course I shall consider what was said by the hon. and learned Gentleman. I never object to the language which he uses, because it is within the character of people to use the language which they use. I cannot possibly say here and now that we shall put down an Amendment, but I shall look at what the hon. and learned Gentleman said. Of course I accept completely his right to move an Amendment himself later if he wishes to, after in his turn studying what I have said this afternoon.

Question put and agreed to.

Clause ordered to stand part of the Bill.