New Clause. — (Profits on Forced Conversion of Investments.)

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 10th June 1964.

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Section 434 (2) of the Income Tax Act 1952 shall be amended by the addition of the following paragraph— (d) any exchange of securities effected in pursuance of a scheme of reconstruction or amalgamation under section 208 or 209 of the Companies Act 1948".—[Sir J. Barlow.]

Brought up, and read the first time.

Photo of Sir John Barlow Sir John Barlow , Middleton and Prestwich

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

It is known that finance companies deal normally in shares and stocks of all kinds, and these may be wholly or partly in all kinds of securities. When there is a take-over bid or reconstruction and the company does not voluntarily sell the securities it technically makes a paper profit. In such a case, as I say, there has been no sale whatsoever, but, as the law stands at present, this paper profit is subject to tax, although it is virtually forced on the company, whether it wishes it or not, by the reconstruction or take-over bid, as the case may be.

Such a profit is ignored for the purpose of the capital gains tax passed last year. I consider that that is the right approach to this type of paper profit, and the Government have already recognised this inequality in connection with paper gains on the conversion of their own securities. I would suggest that my new Clause remedies this present inequality, and I hope that the Government will see fit to accept it.

11.30 p.m.

Photo of Mr Alan Green Mr Alan Green , Preston South

My hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) has raised a specialised point. It is really a technicality but nevertheless interesting. I cannot accept the Clause for what I hope will be a reason that will appeal to him. It is not true that an exchange of securities or a take-over or merger is necessarily a forced conversion.

This would be so even where Section 209 is applied, because there are cases when these shares are taken up and, in the case of 10 per cent., force majeure, as it were, can be applied in the perfect knowledge that this will, or can be, applied. Therefore, these are cases where it is a voluntary action and not a forced action.

I suggest to my hon. Friend, therefore, that it is not true, as the rubric and the Clause suggest, that these are necessarily forced conversions. Perhaps he would like to talk to me about this so that I can examine with him any particular case he has in mind rather than make this rather general provision which the Clause would secure.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

My only comment is that I wonder how that talk will compare with the one about tax-free tolls.

Photo of Sir John Barlow Sir John Barlow , Middleton and Prestwich

My hon. Friend the Financial Secretary has said that these are not necessarily forced profits but it is true to say that in almost all cases of reconstruction or take-overs they are virtually forced profits in that the taking over company usually gets the requisite percentage—75 or 90 per cent., whatever it may be—for the purpose and the smaller shareholders have to accept what is offered to them. In that case it is forced.

However, since my hon. Friend has offered to discuss this matter sympathetically with me I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

Motion made, and Question proposed, That the Chairman do report Progress and ask leave to sit again.—[Mr. Maudling.]

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I acknowledge the civilised way in which the Government have behaved on this occasion. It seems to me that we really are discussing these matters at the best time of day, although I think that the arguments from one side of the Committee on the whole have been superior to those from the other side.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I put it in a suitably neutral form. Nevertheless, I feel that such arguments as the Government can advance are best advanced during the early hours of our sittings and not during late ones. The way in which we have conducted the Bill in the sense of trying to finish at about this time of day is best conducive to the disposal of the business. As far as we are concerned, we shall endeavour to pursue that course in order to try to get the day's business through at a reasonable time.

Question put and agreed to.

Committee report Progress; to sit again Tomorrow.