Under "Schedule D" turer is liable to pay profits, as adjusted.

(profits) of the Income Tax form, a manufac5s. 6d. in the pound on the previous year's Taxation is assessed only on net profits, so that before profits are reckoned for tax the following are deducted: All trading costs, fixed rate of depreciation, wear and tear of machinery (on fixed scale), and bad debts. If there is loss instead of profits, no tax is payable; and losses may be offset against subsequent profits.

Supposing the typical mill, capitalized at £120,000, made a good net profit, say £15,000. The amount of income payable would be £4,125. If the same mill made only a moderate profit, say £7,500, income tax would be £2,062. If no profits were made, no tax would be payable.

National Defense Contribution. Since 1937 there has been, in addition to income tax, a new charge known as "National Defense Contribution." This is a 5 percent tax on profits of limited companies. There is no tax under this head on profits totaling less than £2,000, and on profits of £2,000 to £12,000 one-fifth of the difference between £12,000 and the actual profit can be deducted.

National Defense Contribution counts as a charge on profits, which can be deducted before profits are assessed for Income Tax under "Schedule D."

Thus National Defense Contribution of the £120,000 spinning mill taken as an example would amount to £750 on profits of £15,000; and would be £230 on profits of £7,500. If the firm makes no profit, there is no contribution.

Land Tax. A Land Tax is payable, but when the land on which the factory stands is owned by the firm, the tax is very small.

SO

Local Rates. Aside from national taxation, factories are taxed by the municipality. These taxes are termed "rates", and are based on fixed property. They are payable irrespective of profits, that a firm making no headway still has the burden of local rates, and this has been the source of considerable dissatisfaction in the cotton industry in recent lean years.

The "rate" is a certain sum (fixed by the local rating authority) in the pound, of net annual value of the property computed roughly as for "Schedule A" of the Income Tax. Under the Local Government Act of 1929 (the "Derating" Act), only 25 percent of rate is paid by manufacturing industries. It should be stated that rates are not payable if the whole factory has stopped working.

Taking 15s. in the pound as the average amount of rates payable in Lancashire, the cotton spinning mill taken as an example, having a net annual value of £2,000, would pay £375 yearly in rates.

Total Taxation. The total amount of taxation of a representative cotton spinning mill, as explained in the foregoing paragraphs, is shown in the following table, assuming the firm has a capital of £120,000 and is assessed at £2,000 net annual value. Three alternative cases are given, supposing the mill in question to have made (a) a good profit, (b) a moderate profit, and (c) no profit:

Additional Charges. In addition to the foregoing taxation, a cotton spinning mill is now liable, under the Cotton Spinning Industry Act of 1936, to pay a levy to the Spindles Board set up by that Act with powers to purchase and eliminate surplus spindles in the cotton industry. This levy amounts to 1-1/6 pence per annum per "mule equivalent" spindle. Thus the typical mill having 120,000 mule equivalent spindles pay a levy amounting to £583. The levy, which all spinning mills are obliged to pay, pays the administrative expenses of the Spindles Board and provides the sums required for the service of the loan (up to £2 million) which the Board was empowered to borrow. Cotton weaving firms do not, of course, have

this extra charge.

It will thus be seen that a Lancashire cotton mill is subject to heavy taxation, amounting, in the case of the mill employed as an example, to over 38 percent of net profits of £15,000, and to nearly 43 percent of profits of £7,500. The sum total of all taxation is, therefore, a most important factor to be taken into account in assessing at the present time the competitive position of the Lancashire cotton industry.

*

GREAT BRITAIN

Business Regulation, Investments Act.

The Prevention of Fraud (Investments) Act of April 28, 1939, is intended primarily to regulate the business of dealing in securities for the protection of the investor, and has frequently been referred to as the "share-pushing" Act, according to a report from the Office of the American Commercial Attache, London. The following summary of this Act has been issued by the Board of Trade:

It will be remembered that the object of the legislation which is embodied in this Act is to put a stop to the abuses commonly known as share-pushing and activities of a similar

nature.

The Act primarily provides for regulating the business of dealing in securities; restricts the registration of societies under the Industrial and Provident Societies Act, 1893, and confers on the Registrar of Friendly Societies further powers in relation to building societies; and makes general provision for preventing fraud in connection with dealings in investments.

Certain provisions of the Act come into force immediately, e. g. Sections 10 and 11, relating to industrial and provident societies and building societies, which are administered by

the Registrar of Friendly Societies. So also does Section 12 which imposes heavy penalties for fraudulently inducing persons to invest money.

The effect of Section 10 is that henceforth no society is entitled to register under the Industrial and Provident Societies Act, 1893, unless the Registrar is satisfied that it is a genuine cooperative society or that there are special reasons for registration under the Act in the case of a society which exists primarily to improve the conditions of living or to promote the social welfare of the working classes or otherwise for the benefit of the community. The Registrar is given power to cancel the registry of a society if it does not fulfil these conditions, except in the case of a society which was registered before the Bill was first introduced in the House of Commons, 1. e., the 26th of July, 1938, and has not since then made and does not in future make any invitation to invest.

Any society registered before the 26th of July, 1938, which in consequence of the passing of the Act, converts itself within a year into a company under the Companies Act or amalgamates with, or transfers its engagements to, such a company is relieved of capital duty in respect of the share capital which was paid up on the 26th of July last and of the stamp duty and fees which would otherwise be payable in such connection.

The Act will in no way affect genuine cooperative societies and clubs or genuine philanthropic societies within the meaning of the Act. The Registrar is preparing a memorandum explaining the provisions of Section 10 which will shortly be issued with the object of clearing up cases of doubt as soon as possible. Section 11 gives the Registrar power, where he considers it expedient in the interests of the investor in a building society, to make an Order, subject to the approval of the Treasury, prohibiting invitations to invest money with the society.

Section 12 provides that any person who, by any statement, promise or forecast which he knows to be misleading, false or deceptive, or by any dishonest concealment of material facts, or by the reckless making of any statement, promise or forecast which is misleading, false or deceptive, induces or attempts to induce another person to do certain acts specified in the section, shall be guilty of an offence and liable to seven years penal servitude. So too will be a person guilty of conspiracy to commit such an offence.

The transactions to which the section is directed include fraudulent inducements to invest money in securities, to participate in such transactions as margin transactions in securities, to buy units in agricultural enterprises and the like, to participate in share pools, finance pools, commodity or metal pools and similar transactions in property (including currency) other than securities.

The provisions of the Act which regulate the business of dealing in securities will not come fully into force until a day which will be in due course "appointed" by the Board of Trade by Order. After the appointed day no person with certain exceptions mentioned below will be allowed to carry on or purport to carry on the business of dealing in securities

unless he is in possession of a license granted by the Board of Trade or is a member of a recognized Stock Exchange or recognized association of dealers in securities, i. e., such a body as is considered by the Board of Trade to have a satisfactory code of discipline properly enforced, or unless he obtains from the Board of Trade an exemption under Section 15 of the Act, which is intended to meet the cases of the Banks and Finance Houses.

Licensed dealers will be subject to Rules of Conduct made by the Board of Trade. The Board are required by the Act to give notice of their intention to make such Rules, to publish their proposals in draft, and before making the Rules to take into consideration any written objections or representations with regard to them.

The Board are also required to make Regulations as to the manner in which applications for licenses are to be submitted, the information to be furnished by applicants, and as to fees. These Regulations will in due course be published in ample time for submission of applications and their consideration before the appointed day and until they are published no

applications for licenses or exemptions should be made.

Besides members of recognized stock exchanges and associations and exempted dealers there are, under Section 2, freed from the licensing restrictions of the Act certain specified corporations such as the Bank of England, statutory corporations and municipal corporations, and also managers and trustees of authorized unit trusts. Authorized unit trusts are unit trusts which comply to the satisfaction of the Board of Trade with certain provisions as to the status of the managers and trustees and are based on trust deeds which contain certain specified essential provisions.

Other important provisions of the Act which will not come into force until the appointed day are applicable to circulars relating to investments. Section 13 provides for substantial penalties for the distribution of circulars inviting persons to do any of the things which are the subject matter of the fraud section mentioned above (Section 12) by any person other than those who, under the licensing provisions of the Act, are authorized to carry on the business of dealing in securities. There are saving provisos for certain classes of circularization, such as circularization by bona fide dealers in property other than securities.

LATVIA

Business Regulation, Bookkeeping Requirements.

A law relating to commercial bookkeeping was passed by the Latvian Cabinet on January 17 of this year and promulgated by President Ulmanis. The law became effective on February 1, 1939. Prior to the establishment of this law, there were no bookkeeping requirements in Latvia. There were certain special laws which made the keeping of books obligatory for a certain class of enterprises only. Among these were joint stock companies, limited partnerships and enterprises established on a cooperative basis, mutual credit societies, and credit institutions of communal bodies and their unions. Paragraph 1 of the new law provides that every merchant must keep books of his

business and these must be maintained on the double entry principle. The second section of Paragraph 1 authorizes the Minister of Finance to release certain groups of enterprises from the obligations, laid down in the laws and to determine which groups of enterprises are allowed to keep books on the single entry principle. The Minister of Finance has issued an order which provides that, until further notice, the law shall be applicable to trading enterprises having a turnover of LS100,000 and to industrial enterprises having a turnover of LS250,000. As the keeping of business books becomes stabilized on a legal basis, it is contemplated to extend gradually the application of the law to the lower categories of trading and industrial enterprises as well. Paragraph 9 of the law provides for the admissibility of correctly kept books in evidence irrespective of whether the enterprise in question is under obligation to keep books or not. Paragraph 10 provides that the question as to whether the business books have been kept correctly must be decided in each case by the competent institution which examines the books by strength of the Civil Code or other laws. The law is very short. It does not require in detail the technical manner of keeping commercial books but only provides a legal basis for bookkeeping, and the fulfillment of these fundamental principles gives the books the dignity of valid documentary evidence.

THE NETHERLANDS

Taxation, Proposed Legislation

A new tax bill was presented to the Second Chamber of the Netherland States General on May 3, 1939. It proposes a levy on national income and profits and also amendment of certain existing tax laws and import duties. The bill, of course, is subject to modification and acceptance by the States General. If passed, it will take effect January 1, 1940.

Highlights of the proposal follow: specially stated herein).

(all taxes are new except as

Rent Tax. A Rent Tax of 1.6 percent is to be levied on the revenue from real property, payable by lessor, and not to be charged to lessee. This includes the proceeds from rent of foreign real estate, if lessor is established in The Netherlands.

Interest Tax. An Interest Tax is to be levied, amounting to 2 percent on the revenue from domestic and foreign securities, mortgage and other loans, evenue from life annuities, building leaseholds, hereditary tenue, fee farms, et cetera, but not on the proceeds from domestic bonds SO far as they consist of a division of profit of corporations, associations, et cetera, when these are taxed according to Section VI of the proposed act. (Section VI covers "Company Tax", described below). The interest tax on the revenue from foreign securities, is to be levied in the form of doubling the coupon tax, now 2 percent.

Tax on Wages and Salaries. A Salary and Wage Tax of 2 percent is to be levied on all salaries and wages, payable by the employer who shall take it from salaries and wages. This includes Netherland and foreign laborers and employees, agents and directors of companies, excluding foreign sailors.