Opinion Number. 1065

Subject

WAR-TIME PROFITS TAX LEGALITY OF BRITISH SCHEME TO PREVENT DOUBLE TAXATION OF WAR-TIME PROFITS WAR-TIME

Key Legislation

PROFITS TAX ASSESSMENT ACT 1917, ss. 8, 9: FINANCE ACTS (IMP.), Part III

Date
Client
The Secretary to the Treasury

The following memorandum from the Treasury is forwarded to me for advice on the question raised by Mr Collins:

Two schemes were propounded to prevent double taxation of war-time profits, one by the Board of Inland Revenue, London, and the other by the Commissioner of Taxation (Mr Ewing).

The Board of Inland Revenue will not accept the Commissioner's scheme, and Mr Ewing is of opinion that the Board's scheme does not conform to the War-time Profits Tax Assessment Act (Australia) and that it is not in agreement with the British law, under which the Board's scheme was drawn up.

Mr Collins indicates that there is little hope of Mr Ewing's scheme being adopted. He further says that Sir Robert Garran has accepted the legality of the British scheme, and asks that legal opinion be obtained from Sir Robert Garran.

I suggest, therefore, that the papers be submitted to the Attorney-General's Department for Sir Robert's opinion.

Paragraph 3 of the above has reference to Mr Collins's telegram of 25 October 1920, in which he says: 'Concerning legality British Department points out Garran accepted British scheme'.

The British Department apparently refers to my minute of 28 October 1918, to the Official Secretary to the High Commissioner. The British suggestions for an arrangement were submitted to me in London, and after perusal I suggested certain minor variations and wrote: 'So far as I can see, they (the British suggestions) afford a satisfactory basis for submission to the Commissioner of Taxation in Melbourne'.

The principle of the British proposal, as to the legality of which I am asked to advise, is that where a business is assessed both for Australian war-time profits tax and British excess-profits duty, so that there is double taxation of such profits or any part thereof, only the tax or duty which is higher in amount shall be payable and shall be apportioned between the Governments.

Mr Ewing has objected that this is not in accord with section 9 of the War-time Profits Tax Assessment Act, and contends that that section only authorises an arrangement as to so much of the profits of the business as are actually subject to double taxation-not as to all the profits of a business part of which are subject to double taxation.

Section 9 applies 'In any case where war-time profits are chargeable with war-time profits tax under this Act, and are also chargeable in Great Britain with excess-profits duty'.

It empowers the Treasurer, in any such case, to agree with the Chancellor of the Exchequer for the apportionment between the two Governments of the war-time profits tax or the excess-profits duty, whichever provides the greater amount; and also to agree that the other tax or duty shall not be collected.

I think that the proposed arrangement comes within the terms of the section.

'Profits', in the Australian Act, are defined as profits arising 'from sources within Australia'. There is no corresponding limitation in the British Act.

In the Australian Act, the tax is assessed on the war-time profits in a financial year; in the British Act it is on the profits in each accounting period separately. There are other substantial differences between the two Acts in the method of computing profits and allowing deductions.

These considerations would, I think, make it difficult, if not impossible, to ascertain the taxation applicable under both British and Australian law to any particular part of the profits of a business.

I think that section 9 is fairly capable of the construction which makes it applicable to the profits of a business where there is double taxation of any part of the profits.

[Vol. 17, p. 305]