Clause 28. — (Transactions Designed to Avoid Liability to the Profits Tax.)

Part of the debate – in the House of Commons at 12:00 am on 11 June 1951.

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Photo of Sir Frank Soskice Sir Frank Soskice , Sheffield Neepsend 12:00, 11 June 1951

The difficulty in the way of the Amendment is that the avoidance of tax by reduction of profits, or the increasing of a loss, is not the only sort of avoidance that is within the scope of the Clause. As the hon. and learned Gentleman said. Clause 27 deals with capitalisation and repayment of capital, but Clause 28 is quite general in scope and, supposing the form of words which the hon. and learned Gentleman proposes were adopted, this kind of case would be excluded from the Clause.

The case of payment of excessive directors' remuneration would be the case of a director-controlled company where a director has put his shares in the name of a nominee and, therefore, is not technically a member of the company, with the result that the excess remuneration paid to him would not, under the law, attract the higher rate of Profits Tax. That would be a case in which there was an obvious manoeuvre which would have the result of preventing the company being director-controlled and, therefore, the limitation on the remuneration of the directors would not apply and the higher rates would not be imposed upon the excess remuneration. That would be a clear case of obvious avoidance, but it would not be within either of the limits of the formula which the hon. and learned Gentleman proposes. For that reason I think he will agree that the Amendment would not improve the Clause.