I beg to move, in page 22, line 3, to leave out from "person" to "has".
This is a probing Amendment. I am not sure whether it deals with a narrow point, or whether there is a strait gateway leading to an expansive area in which there is a large amount of tax dodging, or a large number of innocent people who might get caught. I have put down the Amendment primarily to get an explanation from the Government and to find out the exact meaning of the words which I propose to leave out.
This being the first Amendment to this Clause, I do not intend to pay any attention to the words of the right hon. Member for Huyton (Mr. H. Wilson), who objects to hon. Members on this side of the Committee saying that, however much they dislike dividend stripping, bond-washing and tax-dodging "sharks", they intend to do their best to prevent the Clause from catching the innocent. I shall go on trying so to do and announcing that I am trying so to do until the right hon. Gentleman is as "fed up" as some of us might conceivably become with the speech which we have now heard seven times from the hon. Member for Gloucester (Mr. Diamond).
I believe that there is another principle here which should apply, and that is that one should not be penalised or punished for what one has not done. When I was at school, there used to be on a wall a series of placards, which we had to make up, representing forbidden sayings. One of these forbidden sayings, was "Please, sir, I never did it." We were told that these were forbidden, because life was unjust and very often in life one got punished for things which one never did. On the other hand, I believe that it is the duty of the House of Commons to prevent people from being punished for things which they never did, and these words which I am proposing to leave out of the Clause would appear to me to penalise someone before he had actually committed what this Clause purports to make into an offence.
If we start at the beginning of the Clause, we find that it is provided that where
in any such circumstances as are mentioned in the next following subsection",
and where in consequence of a transaction or transactions in securities, a person is in a position to obtain a tax advantage, then, apparently, he can be called upon to pay a substantial amount of tax, or not be able to claim repayment of tax, to which otherwise he would have a right. If the person has obtained a tax advantage, as the next three words suggest, then, obviously, there is a case for nullifying the advantage that he has received, and thereby making that type of transaction unattractive or unprofitable for him to enter into.
If he has merely got himself into a position in which he can obtain a tax advantage, which he has not done, it does not seem to me, quite frankly, to be a desirable thing that he should be punished for being in a position in which he might commit what this Clause proposes to make an offence. In other words, the Government seem to me, by the words that I am proposing to omit, to be creating, so to speak, an offence of loitering with intent to obtain a tax advantage.
How can such a person be punished if, in fact, he has not taken advantage of the tax device, but has only put himself in a position in which he could take advantage of it? Surely, all that could happen in his case is that he would be prevented from taking advantage of it. That is not punishment. That is just stopping him from doing something which he might not have intended to do.
I find it very difficult to read that into the words of the Clause, and I want to ensure that we are not now creating this new offence of loitering with intent to gain a tax advantage. I should, therefore, be grateful if either my right hon. and learned Friend or my hon. and learned Friend will explain just what these words mean.
I share with my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) the desire to see that the scope of this
Clause does not extend to include transactions which we would all regard as entirely legitimate, and I welcome his desire to have the reasons for the inclusion of the words
is in a position to obtain
The question raised by this Amendment is whether that phrase should be left out and the Clause come into operation only when the person has, in fact, obtained a tax advantage. A tax advantage is a phrase defined by Clause 40 (4, g) of the Bill, and, reading the definition of those words, it means that a person must be in a position to obtain
relief or increased relief from, or repayment or increased repayment of, income tax, or the avoidance of an assessment to income tax or the reduction of such an assessment;
Of course, to get relief or reduction, he would have to claim it, and he will have to assert, presumably, if the Inland Revenue seek to assess him, that the assessment should be avoided or reduced.
I think that it is right that, at that stage, the Inland Revenue should be able to step in and counteract the tax advantage which otherwise he would obtain. All these other conditions have to be satisfied before he is in a position to obtain a tax advantage, and, when he is in that position, I think that it is right that the Inland Revenue should be able to step in and counteract it, rather than have to wait and may be repay the amount claimed as relief, with all the difficulties which might follow in getting the recovery of the amount.
Let us suppose that a claim for relief was made by someone outside the jurisdiction who claimed exemption under, for example, a double taxation agreement. If we leave these words out, the opportunity for nullifying the tax advantage would not arise until the tax had been repaid to someone outside the jurisdiction, and there might be great difficulty in nullifying the tax advantage.
I assure my hon. Friend that there is no question here of penalising somebody before he commits an offence. There is no question of an offence in this Clause, and no question of penalising anybody. The sole effect of it is that where these conditions prescribed in the Clause are satisfied, so that a person can obtain or does obtain a tax advantage, that tax advantage can be nullified.
I hope that with that explanation we can now perhaps proceed to the later parts of the Clause, because one of the difficulties about dealing with this Amendment is that it would take up undue time to relate it to its background. When my hon. Friend considers the rest of the Clause carefully—and I think that it should be subjected to careful examination—I think that he will be satisfied that the retention of these words is reasonable and right.
May I ask the Attorney-General a question? If one may attempt, as a layman, to put this matter into rather plainer language, am I right in assuming that all that this Clause does is to say that where this taxpayer has put himself in a position to gain a tax advantage, the Clause gives the Inland Revenue power to serve notice, or whatever is the correct expression, on that taxpayer and to take steps to see that he is not able to use that advantage? Is it not a fact that it does whatever is necessary for counteracting the tax advantage, that is, it prevents him from getting that tax advantage, but lays no other penalty on him whatever?
I thought that that was what I had said; and I hope I said it clearly. The fact that the right hon. Gentleman opposite has understood it as that rather indicates to me that I did.
The next Amendment is that in page 22, line 4, to leave out from "transactions" to "this" in line 8, and to insert:
would have been carried out if no tax advantage had been obtained or obtainable in consequence thereof".
It would be for the convenience of the Committee if we discussed with this Amendment that in page 22, line 4, to leave out from "shows" to "this" in line 8 and to insert:
a reason or reasons other than the obtaining of tax advantages for carrying out the transaction or transactions".
that to page 22, line 4, to leave out from "then" to the end of line 10 and to insert
if the Commissioners of Inland Revenue are satisfied that the transaction or transactions were carried out solely for the purpose of obtaining a tax advantage or tax advantages, they may proceed in accordance with subsection (3) of this section and this section shall apply in respect of the person making the transaction or transactions".
and that to page 22, line 7, to leave out "or one of their main objects."
I beg to move, in page 22, line 4, to leave out from "transactions" to "this" in line 8, and to insert:
would have been carried out if no tax advantage had been obtained or obtainable in consequence thereof".
This is the first of a series of Amendments which have been placed on the Notice Paper by my hon. Friends and myself with a general purpose that applies to all of them, in addition to the specific purpose for each Amendment or each group of Amendments. Perhaps I might refer, first, to the general purpose which is common to all of them, and, in doing so, I shall not disappoint the expectations of the right hon. Member for Huyton (Mr. H. Wilson), who is not with us at the moment.
I wish to begin by asserting that there is no one on this side of the Committee, as in any part of the Committee, who does not wish to see the utmost vigour and effectiveness in the safeguarding of the revenue and the prevention of tax dodging. But vigour and effectiveness in doing that are not the same as arbitrariness and unfairness in the methods by which the House of Commons attempts to do so. Indeed, I would assert the contrary. Here is the real myopia—to take his word—of the right hon. Member for Huyton and his colleagues, who do not realise that if we are to be successful in our attack upon tax dodging and in maintaining the standard of conduct to which reference has so often been made already in these debates, the House of Commons in the legislation which it passes with that object must be fair, must be seen to be fair and must be felt to be fair.
I thought the Financial Secretary put his finger on the nub of the matter when he said that the most dangerous thing in this respect is anything which leads to cynicism. I cannot think of anything more likely to lead to cynicism than if there were an impression among taxpayers that when the House was about its business in safeguarding the revenue and preventing tax dodging it was careless of fairness to every taxpayer. It is with the object of ensuring fairness in this Clause that these Amendments have been placed on the Notice Paper.
With that preface, I shall come to the object of my Amendment. We shall be discussing presently the definition in subsection (2) of the circumstances of tax avoidance which the Clause is designed to catch. It has not, however, been thought to be possible, and probably it will still after all our efforts be found to be impossible, to define those circumstances so strictly, accurately and narrowly that they do not catch any persons or transactions which it is no part of the intention of the House of Commons should be caught. We are, therefore, considering in this subsection the means whereby a person involved in the circumstances defined in subsection (2) can show that he is not the kind of person, nor the transaction the kind of transaction, which the House believes should result in a counteraction of the tax advantage obtained or obtainable.
In order to do that as the Clause is drawn, a certain onus is placed upon the taxpayer to show certain things, to show cause, in fact, why the tax advantage, any tax advantage, involved should not be counteracted. I have no intention of going over the ground of yesterday's debate relating to Clause 18 on this question of the onus upon the taxpayer. My hon. and learned Friend the Solicitor-General showed the Committee that widely throughout the tax code there are cases where there is an onus on the taxpayer to substantiate a claim or an assertion which he makes.
But it is important to notice that we are not by any means in all cases here dealing with a claim on the part of the taxpayer. We are in many cases dealing with instances where a sum or a gain will be treated as taxable which otherwise would not be taxable. So it is by no means true to say that here the onus is placed on the taxpayer because he is making a claim for relief or is making this or that assertion. It is, therefore, particularly necessary that we should scrutinise with jealousy and care what it is that we are obliging the taxpayer to show and whether it is a reasonable and, indeed, a practicable demand that we are making upon him.
The first thing that one notices in reading the words in line 4–8, which describe what the taxpayer has to show, is that part of what he has to show, and, indeed, the most important part, is a negative. He is here being called upon to prove a negative, that none of the transactions has as its main object or one of its main objects to enable tax advantages to be obtained.
We had it urged on behalf of the Revenue yesterday afternoon that it is notoriously difficult to prove a negative, and this seems to me to be a peculiarly difficult negative to prove, because in order to prove it the taxpayer would have to show all the motives and all the objects which were in his mind in connection with the transaction. He would have to show that he had exposed the whole range of motives and that he had no motive other than those which he showed, and he would have to arrange them in a kind of order of magnitude and show that tax avoidance was not the main one. He would not have finished then, because he would have to show that it was not one of the main objects.
It seems to me that the wisest heads might long dispute as to how many main objects and how many minor objects there could be to a particular action or transaction and what was the dividing line between the main objects and the subsidiary objects. So this is the negative which the taxpayer has to prove. He has to expose all the possible objects, show that there are no others and show that tax avoidance is not the main one of them or—whatever that may mean—one of the main ones.
Secondly, the taxpayer is required to show something which is subjective. This is, of course, not uncommon, as my hon. and learned Friend will confirm. It is not at all uncommon that a demonstration of motive should be required. But we are entitled to bear in mind when noting what the taxpayer here has to show that not only has he to prove a negative, and a very difficult negative, but that what he has to prove is something relating to an intention, which, therefore, in any case can be shown only by inference.
Finally, the taxpayer has to show something which relates to motives not exclusively his own. He has to show that none of the transactions:
…had as their main object, or one of their main objects to enable tax advantages to be obtained…
It does not say by whom they are to be obtained. The matter is quite at large, and unless the taxpayer shows that the obtaining by someone, by anyone, of a tax advantage is not a main object or one of the main objects he cannot escape.
Therefore, the taxpayer not only has to prove a negative of a difficult character, not only has to prove a state of mind, but has to prove a negative about a state of mind which need not be his own. I think it is not an exaggeration to say that this is an intolerably onerous burden to place upon a taxpayer if this House is serious, as it must be presumed to be, in desiring to provide that those whom it does not wish or intend to catch by the Clause should not be caught. Therefore, I wish earnestly to appeal to my right hon. and hon. Friends on the Treasury Bench to go back to the starting point here and ask what it is that we are really aiming at.
If one does not have to put it in formal statutory language, it is easy enough to say what we are aiming at and what I am sure they are aiming at. A citizen is entitled to conduct his affairs, to conduct his legitimate business, with regard to the tax consequences of what he does and without the necessity of conducting his business in such a way that he pays the maximum tax. What he is not entitled to do is to make a business of tax dodging. He is entitled to conduct his business in the manner most advantageous to himself. He is not entitled to conduct a business which consists of tax avoidance.
I believe that there cannot seriously be any difference in any part of the Committee that that is the frame of mind in which we approach this provision in subsection (1). The difficulty is to convert that intention into statutory language and to frame a demonstration we require from the taxpayer which will correspond with that intention, which will be exact and, so far as possible, will be objective and practicable, so that if he is the kind of person who is going about his business in an ordinary, prudent way he will not be caught.
With that intention my hon. Friends and I have placed this alternative wording as an Amendment on the Notice Paper. It would require the taxpayer to show that the transaction would still have been carried out if no tax advantage had been in the case at all. That is something which it is practicable for a taxpayer to demonstrate and something which is objective. He has to show why he carried out that piece of business. He has to show that there was a reason for doing it other than a tax advantage, that he had grounds for engaging in that transaction, and when he has established that then he has shown that he is not pursuing the business or trade of tax avoidance. By this Amendment we have substituted an objective and practicable test for the test in the Clause, as it stands, fraught with the difficulties which I have argued.
I am prepared to believe—I know I speak for my hon. Friends who have added their names to the Amendment—that this formulation can be improved on still in the same sense. I believe there may be still difficulties in that the question may arise whether the transaction concerned is a transaction exactly of that character, or the commercial aim of the transaction which might have been carried out in that or in a variety of other ways. But I appeal as strongly as I can to my right hon. Friend and to his colleagues to direct their minds afresh to the formulation found in subsection (1). I cannot believe that there is any difference of intention, any difference of spirit, on this matter between the Treasury Bench and my hon. Friends on the Government back benches. I suggest that the wording we have at present would be felt to be unfair; would be felt to be unduly onerous; would promote that cynicism to which my hon. Friend the Financial Secretary referred. I believe it is along the lines suggested by this Amendment that the way is to be found, and in that spirit I submit the Amendment to the Committee.
I entirely support my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) in his object. In particular, I support him regarding the need to eliminate the requirement to prove a negative. But, with great respect, I am not absolutely sure that by means of his Amendment my hon. Friend has entirely fulfilled that object.
I am sure that my hon. Friend the Financial Secretary knows the song:
Standing on the corner watching all the girls go by.
My hon. Friend is in the reverse position of having all the girls standing on the corner watching him go by, but no doubt one day one of them will catch him. However, it is not that side of the song which concerns me. It is the juridical implications. The Committee will recall that the song continues
You can't go to prison for what your're thinking
You can't go to gaol for the look in your eyes.
That is really the objection both to the Clause as it is drafted and to the Amendment moved by my hon. Friend. Because surely what he is objecting to is the subjective nature of the test, and the Clause as drafted requires that the taxpayer should show that none of his transactions had as their object, or main object, the gaining of a tax advantage.
I agree with my hon. Friend that what goes on in a man's mind, what he intended to be the result of his action, is not a proper matter for judicial determination. But I am not at all sure that the test which is substituted by my hon. Friend is any better, because his test is what is the answer to a question based upon a hypothetical set of circumstances. My hon. Friend, as it were, asks the judge to say what the taxpayer would have done in certain circumstances, and I am not sure that is any better than asking him to say what was his object.
I suggest, therefore, that it would be better to insert the words in a proposed Amendment which I have put down, namely, that the test should be whether the taxpayer had
a reason or reasons other than the obtaining of tax advantages…".
My hon. Friend actually mentioned the word "reason" in presenting his case. I submit to the Committee that whether or not a reason exists is a proper subject for judicial determination, because one
can decide in the light of ordinary business criteria what would be a reason for a certain commercial action. I suggest that the Committee should support my hon. Friend in his objection to the Clause in its present form, but I ask my right hon. and learned Friend to consider substituting, for the words of the Clause, words which will put upon judicial decision a test which can properly be made and not a subjective test or a test in answer to a hypothetical question.
I should like more clarification regarding the precise advantage that this Amendment would have over the original wording. The hon. Member for Wolverhampton, South-West (Mr. Powell) said—without convincing me—that it would have three clear advantages over the existing words. The first was that the existing wording attempted to prove a negative whereas the amended wording would attempt to prove a positive.
My hon. Friend has assisted me in advance. It seems to me that there is no major distinction between the wording; both attempt to prove an intention or hypothesis. Really, the factor which is common to both wordings is much more important than whether one is a negative hypothesis and the other is a positive hypothesis. In the one case, we are attempting to prove whether something did or did not have something as its main object and, in the other, whether something would or would not have been carried out. In either event, we are attempting to prove something in people's minds, something subjective, something conditional, something essential in terms of intentions and motives. Therefore, I do not see that the suggested wording has any advantage over the original wording.
The second objection which the hon. Gentleman brought against the original wording is really covered by what I have said, namely, that the original wording brings in the question of motive or intention. Of course it does, and as the hon. Gentleman rightly observed, this is by no means a unique thing either in tax law or in any other form of law. But it is also an objection against his proposed amended wording which similarly brings in the question of intention.
If one asks someone, "Would you have carried out this transaction if no tax advantage had been attained or was attainable?", one is asking him what his intention was. He cannot answer the question whether he would have carried out the transaction or not without the question of motive or intention—
On the first point, one is not asking him a direct question, Was he doing such and such? The meaning of the Amendment is: would this transaction have been carried out under certain circumstances, the circumstances being that no tax advantage would be gained? When one puts the question, "Would you have carried out this transaction?", one is bringing a person's motive and intention into discussion. I cannot see any superiority of these proposed words over the original words.
On the third point, the question that the original wording brings in not merely the person himself, the individual to whom one is putting the question, but other individuals, the hon. Gentleman pointed out that the wording of the Clause as it stands means not merely, "Was it the main object to enable tax advantages to be obtained by the person himself?", but it implies that they could be obtained by others. The wording proposed by the hon. Gentleman suffers from the same objection because his wording means, "Would this transaction have been carried out if any advantage had been obtained or obtainable?" So whether someone else as well as the original person might have gained comes in.
Therefore, I cannot see on any of the three arguments mentioned by the hon. Gentleman that once his wording is looked at in detail it carries any advantage over the wording of the Clause. If there were any danger of accepting his wording, which to my mind does not come to anything substantially different and which to my mind might be somewhat looser wording and might open up more loopholes, I should be strongly against it.
If I intervene at this stage, it is not with any desire to limit the debate, but we have a great deal of ground to cover and, if necessary, my right hon. and learned Friend can intervene again later.
In a sense, this debate is to some extent premature, because this subsection can only be judged, and particularly the passage that we are discussing can only be judged, in the light of our discussion of subsection (2). On the other hand, we have to take the Order Paper as we find it, and it is inevitable that we suffer here from that disadvantage. I certainly do not propose to put this Clause into its general setting. My right hon. and learned Friend will be doing so on the later Amendment.
May I say very shortly that what the Inland Revenue has to prove first of all is that the case falls within the terms of subsection (2). Secondly, it has to prove that there was a transaction in securities, and thirdly, that as a result of those two factors a tax advantage has been obtained. On all those matters the onus of proof is, of course, as my hon. Friend recognised, on the Inland Revenue. But it is necessary in so many of these anti-avoidance provisions to make sure that, however narrowly we define the external circumstances which make the Clause bite, we are not harming perfectly ordinary transactions that are carried out in the ordinary way of business. I entirely agree, with respect, with my hon. Friend's approach. We have to show the utmost vigour and effectiveness—as I was very glad to hear my hon. Friend say—against tax dodging. On the other hand, we would resent, and rightly resent, any attempt to be arbitrary or unfair, and I was very glad to hear my hon. Friend repel the insinuations of the right hon. Member for Huyton (Mr. H. Wilson).
The first matter, which is not raised directly by any of these Amendments, is the question of onus of proof. I only desire to say this. I addressed some words to the Committee on it yesterday in relation to Clause 18. This case, I think, falls within the class of case which I mentioned, that the law does normally, or very frequently, place on a litigant the onus of proving facts which are particularly within his own knowledge; and, of course, this is essentially one of those cases.
What the Clause does is to go on to say that even though the Inland Revenue has discharged its onus of proving the three matters to which I referred earlier, nevertheless there shall be a let-out if the taxpayer proves that the transaction or transactions were carried out for bona fide commercial reasons or in the ordinary course of making or managing investments and that it was not their main object, or one of their main objects, to enable tax advantage to be obtained.
The proposed Amendment substitutes for the words I have just read other words, so that the Clause would read, unless the taxpayer
shows that the transaction or transactions would have been carried out if no tax advantage had been obtained or obtainable in consequence thereof.
With very great respect to my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), I thought there was great force in the observations of both my hon. Friend the Member for Ilford, North (Mr. Iremonger) and the hon. Member for Grimsby (Mr. Crosland), that the Amendment does not by itself change a subjective test into an objective test. What it does is to deal with what might have happened in hypothetical circumstances, as I think my hon. Friend pointed out, and that prevents it from turning on a pure question of fact. But my main objection—
Would not my hon. and learned Friend agree that when the taxpayer came to prove that he would have made this transaction if there had been no question of tax advantage to be obtained, it would be some time after the transaction, and that a relevant item of proof would be that the transaction had, in fact, proved profitable for the reasons that were stated, irrespective of any tax advantage that might be obtained? For example, a gilt-edged switch might be proved to be a profitable gilt-edged switch irrespective of the advantage which might have been obtained.
I am not certain whether that is absolutely right, but it certainly applies equally to either way that the Clause might be framed.
As I was about to say, my real objection to the Amendment is that it would make the Clause unworkable. In other words, it fails to satisfy the test propounded by my hon. Friend himself that we shall act with vigour and effectiveness. All that would be necessary for the operator would be to come along with a story of circumstances in which the transaction might have been carried out even if the tax advantage had not been available. Such a provision would allow the operator to come before the appellant body and argue that even if there had been no tax advantage he would have carried out a certain transaction. That would leave too large a loophole for schemes designed for tax avoidance purposes.
I put it that way, and it is really self-evident; but we have experience of the way in which such a provision would work. When the Finance Act, 1941, passed through the House—and this was in connection with the Excess Profits Tax—the test applied by a change made in Committee was that the main purpose of any transaction had to be the avoidance or reduction of liability to Excess Profits Tax. Conservative Ministers at the time expressed great misgivings at that narrowing down of the test, and their misgivings were borne out by the subsequent history. The original proposal was that it should be the purpose or one of the purposes. Experience shows that where a transaction under this provision was made an individual could put forward explanations to the Special Commissioners designed to show that the main purpose of a transaction was something other than tax avoidance. I have looked up the debate in which the matter was put right in 1944. It was necessary for the Government to come back and say that this provided a loophole through which clear tax avoidance schemes could be driven. I read the debate in which the present Lord Chancellor, then Solicitor-General, gave examples of the sort of stories which were told and which very naturally the Special Commissioners were not prepared to reject entirely. The stories had just sufficient plausibility, particularly with the onus of proof where it was, for the Special Commissioners to give the benefit of the doubt and as a result Parliament was driven to make a change.
If, as I suggest, the Amendment in the name of my hon. Friend the Member for Wolverhampton, South-West falls subject to the criticism that it would provide a loophole in the Clause and make the Clause fail to satisfy his test of effectiveness. I am afraid that the other Amendments, and particularly that of my hon. Friend the Member for Ilford, North, must fall even more strongly and for the same reasons. However, I listened, as I always do, with great interest to the observations made by my hon. Friend. I am prepared with my right hon. and learned Friend the Attorney-General and my right hon. Friend the Chancellor of the Exchequer to look again at this form of words to find whether we can make it more objective, but in the end the test must be such that we should not provide a loophole by which the Clause can be frustrated.
The purpose of the Clause is to act against operations which in all parts of the Committee are rejected as utterly unfair to the general body of taxpayers. We have a duty to make the Clause effective. We must be sure that we are acting fairly towards ordinary transactions, but in doing so we must not entirely frustrate the purpose of the Clause. If my hon. Friend the Member for Wolverhampton, South-West is satisfied when I say that we will look sympathetically on an attempt to make the Clause more factual, I hope that he will withdraw the Amendment.
Would my hon. and learned Friend the Solicitor-General consider whether it would not be sufficient merely to exclude the words which comprise the negative referred to by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell)? They are:
…and that none of them had as their main object, or one of their main objects, to enable tax advantages to be obtained…
My hon. and learned Friend has already alluded to the fact that when we come to consider subsection (2) it will be found that it deals with all these matters. If these words were excluded there would be a positive test, an onus on the person concerned to establish that he is conducting his business bona fide for the purpose of making or managing investments. Would that not be sufficient in itself?
There is such a dazzling array of legal talent on both sides of the Committee that anybody else intervenes in the debate with some audacity, but I express the hope that the Solicitor-General in his efforts to make the Clause more factual and objective, which we would all like to see done, will not open a loophole which both sides of the Committee professes not to wish to see opened.
It seems to me that the hon. Member for Woverhampton, South-West (Mr. Powell) was on stronger ground when he was criticising the Government's wording than he was when he was defending his own. I make these two general observations. In debating the Amendment, we must remember that we are discussing a subject which in the first place is very narrowly delimited in any case by the rest of the Clause. Therefore, any of these transactions would already be prima facie dubious and questionable before they ever came up for consideration. In the whole of the battle, as we might call it, the Inland Revenue has most of the dice loaded against it. First, in the earlier stages, it does not know what is going on, and in the second case it is always tagging along behind and fighting a battle which is really already over with the potential tax evaders.
I should like to remind the hon. Member for Wolverhampton, South-West—and the Solicitor-General can tell me if I am wrong—that the Clause is to some extent based on Section 32 of the Finance Act, 1951, which took the same action to protect the Revenue in the matter of Profits Tax. The words of that Section are:
Where the Commissioners are of opinion that the main purpose or one of the main purposes for which any transaction or transactions was or were effected…was the avoidance or reduction of liability to the profits tax, they may…
and so on. In this case, if I understand aright, and I presume that this is still the law under which we are operating the Profits Tax, it is a matter of what
is the opinion of the Commissioners of Inland Revenue. The taxpayer has no chance of proving anything at all.
Nevertheless, in the Clause which we now have before us there is surely more opportunity for the taxpayer to prove that his transaction was not of a kind which would make it liable to be nullified. Surely the hon. Member for Wolverhampton, South-West is in this difficulty. On the one hand, if what the taxpayer is required to prove is that he would have acted in a certain way, he is in the difficulty that it is no more objective than the test which the Government wish to set before us. In either case he is proving something about his own intentions in the past.
In the context of the 1951 Act, will the right hon. Gentleman explain to the Committee how it is possible to prove one's intentions in a business capacity? The right hon. Gentleman is talking about a Section of the 1951 Act which deals with Profits Tax. Profits Tax is essentially a corporation tax. How is it possible for any person, or any corporation, to prove an intention before the Commissioners of Inland Revenue? As a businessman in another capacity, I would find it impossible to prove an intention. I might assert quite honourably that I had hoped to achieve a particular objective, but to prove an intention manifestly is nonsense.
All I was saying was that by the wording of the 1951 Act it was the opinion of the Commissioners about the purpose—not the intention—which was decisive. I was trying to make a different point from that made by the hon. Member for Wolverhampton, South-West, that under his Amendment either one would have to prove, as my hon. Friend the Member for Grimsby (Mr. Crosland) said, something hypothetical, that the transaction would have taken place in different circumstances, or alternatively, as the hon. Gentleman rather suggested, one would be able to prove something objective, namely, that the particular transaction not merely had its advantages for tax avoidance pur- poses but also had some other specific and identifiable objectives. Surely he would be opening a loophole.
Would it not then be possible for the potential tax evader, or tax avoider, simply to devise or select a form of transaction which both had effects beneficial to him for tax purposes and also had other effects which he could demonstrate, and indeed, as the hon. Member for Basingstoke (Mr. Denzil Freeth) said, he could argue that this was beneficial in that fashion? If that were so, I should have thought that it would not be very difficult for a person who indulged in these ingenious transactions and devices to think up schemes with a dual effect, or indeed more than two effects, which would give him the tax advantage he wants, and at the same time enable him to argue that here were the objective advantages of the non-tax kind which therefore legitimised what he had done.
If that is the case, I hope that the learned Solicitor-General will not adopt a solution which would open a loophole which appears to me to be as wide as that already.
I could not help thinking that the right hon. Member for Battersea, North (Mr. Jay) was taking a very jaundiced view of the situation when he referred to the case which I brought to the notice of my hon. and learned Friend. I suggested that under the Amendment it would be possible for a person to plead that the Clause could not apply to him because he had had other reasons for making the transaction, and he could submit as proof of his other good reasons the fact that the transaction had obviously proved profitable. As I understand it, in such a case the right hon. Gentleman would still consider it more than likely that the person who made the transaction did so to obtain the tax advantage just as much, if not more than, as to obtain the other advantages which subsequently accrued.
That seems to me to illustrate the difficulty of the wording of the Clause as it now stands. Either one will assume that anybody who obtains a tax advantage is automatically somebody who is doing something wrong and should not thereby be allowed to enjoy the benefit of that advantage, or one takes the view that there is nothing wrong in tax advantage in itself in so far as it consists of so altering one's affairs as to lessen one's tax liability, provided, as my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) said, one does not indulge in tax dodging as a kind of industry or occupation. I would strongly oppose any suggestion that it was wrong for a person to reduce to the minimum legally permissible the amount of tax which he should pay in any one year by so arranging his affairs.
This seems to me one of the great difficulties of the Clause as drafted, namely, that it assumes that anybody who reorganises his affairs so as to pay less tax than he might, or alternatively—
I did, because the Clause covers all the subjects of the Queen, and it is right that it should.
As I was saying, one of the difficulties of the Clause is that it assumes that anybody who so organises his affairs should be disbelieved if he happens to state that he made a certain transaction with the idea of doing something other than simply and solely obtaining a tax advantage. I suggest to the Committee that what my hon. and learned Friend the Solicitor-General said yesterday was right. He said:
As the hon. Member for Orkney and Shetland pointed out, to put on any litigant the burden of proving a negative is a very heavy one, and one that is very difficult to discharge."—[OFFICIAL REPORT, 24th May, 1960; Vol. 624. c. 249.]
I think that one can see from the closing words of the intervention of the right hon. Member for Battersea, North that it is one which is virtually impossible in this connection, because if one happens to take the view that a person who obtains a tax advantage is an intelligent person and capable also of making a transaction that proves profitable on other grounds as well, it is impossible to imagine that he actually made the transaction without having as one of his main reasons that of obtaining the tax advantage which he subsequently did.
Does not the hon. Gentleman agree that if a transaction which has both tax advantages and other advantages is undertaken for the sake of the other advantages, it becomes possible for anybody to secure the tax advantage?
I do not think that we are far apart in deciding the area of ground over which we are to tussle, because the right hon. Gentleman wants to assume that everybody is, in fact, committing an anti-social, if not an illegal, act unless he is able to say that he happened completely and utterly to overlook the fact that a tax advantage lay in his way, whereas I believe that in the case of tax law it should rather be for the person to prove that he did what he did having other main reasons for making the particular transaction which he did. Quite frankly, the more one considers what the right hon. Gentleman said and the more one looks at the wording of the Clause in which a person is asked to say that it was not one of his main objectives to obtain a tax advantage the more obvious it becomes that nobody who is suspected under the Clause has a hope of ever proving that he is, in fact, innocent. That is my main difficulty.
I hope that my hon. and learned Friend and his colleagues will look seriously at this matter again, firstly, to enable the person in question to prove a positive rather than a negative, and, secondly, to enable the person not to be penalised in the sense of being unable to obtain tax reliefs to which he would otherwise be entitled, or be penalised in a more serious and more accurate sense of the word, by having taken from him as taxable income sums which otherwise he would consider to be capital. Unless one can enable him to conduct his business without not only not being able to obtain tax reliefs but, in addition, having the greater difficulty and the greater penalty of having removed from him what he has got because it is adjudged to be not capital but income, then, quite frankly, I shall find it very hard indeed to vote for this Clause.
I want to intervene at this stage just to make one or two observations particularly in the light of what my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) has just said. The real difficulty about discussing this Amendment at the present time is that we are discussing it before we have fixed upon the body of the Clause. I would ask my hon. Friends to pay consideration to this. The really important thing, as I see it, is to get the other parts of subsection (1) and subsection (2) right. The more precise they are the less importance attaches to the words which are under consideration now. If we can get them, as we want to, defined as closely as possible so as to be fair, then it may be the case, and I think it would be the case, that the reliance upon these words would seldom arise; and, indeed, where all the other considerations are satisfied—it is not just a case of general tax advantage, as the right hon. Gentleman seemed to think—an argument can be advanced that there should be a heavy onus upon the person whose transaction is of such a nature as to bring him within the scope of the Clause at all.
My hon. and learned Friend the Solicitor-General has said, as indeed is the case, that we will willingly consider between now and Report whether we can find an improvement on the present words. We cannot, for the reasons which my hon. and learned Friend stated, accept the hon. Gentleman's suggestion or any of the other suggestions which have been put forward, but we have not got closed minds upon this. What I would say to the Committee is that we have a lot to consider. I believe myself, without closing the door on this, and bearing in mind that we will consider any suggestion, that our discussion on this will not be very profitable till after we have dealt with all the rest of subsection (1) and subsection (2); and we can raise this point again on the Question, "That the Clause stand part of the Bill."
I am not trying to obstruct things or to prevent proper discussion, but it seems to me that discussing it without that background fully considered—and there are other Amendments on the Paper dealing with this—will not be very fruitful at the present time. It is for that reason that I would ask my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) whether we could not now get to the main body of the Clause.
We on this side fully appreciate the difficulties to which the Attorney-General has drawn attention. Indeed, earlier in our debates in Committee I said that we were at times under great disadvantage, because we had to move an Amendment to a Clause which had not been fully deployed before the Committee, and we had not got the whole Clause in balance before we had to move an Amendment on a narrow issue which might quite fundamentally have altered the purpose or the working of the Clause.
I regard that as one of the difficulties of our procedure, Mr. Thomas. Do you know of any method whereby we could postpone consideration of the Amendment moved by the hon. Gentleman the Member for Wolverhampton, South-West (Mr. Powell) till later in our proceedings? The Attorney-General has asked the Committee to pass on, and says that the Government have an open mind on the matter, which we quite sincerely accept; but I can quite understand that some Members of the Committee may feel that they do not want to pass on and leave this entirely aside with no hope of returning to it till we come to Report. Not every Member of the Committee has full confidence in what one can do on Report. I am sorry if this is an imposition on your experience, Mr. Thomas, but do you know of anything we can do to get out of this dilemma?
I do not want to detain the Committee, especially in view of what the Solicitor-General and the Attorney-General have said, but I sympathise with the point made by the hon. Member for Sowerby (Mr. Houghton). It seems to me that, in general, there are two valid objections to the wording we are discussing if one looks at it by itself, the first being its great uncertainty, and the second being that, on the face of it, a man's liability to tax may be altered according to his motive. It is not a new departure, but it is a very difficult matter to assess.
As I understand it, we are not dealing now—and this is the point which I want to get clear—with the man who says, "I will buy some tax reserve certificates because I am a Surtax payer and this is a method of minimising my taxation." We are not dealing now with the man who says he will buy savings certificates because that will save him a lot of tax, but with the man who enters into a lot of complicated negotiations mentioned in subsection (2). He will have engaged in those negotiations mentioned in subsection (2) before he comes under the provisions of subsection (1) and before subsection (1) comes into play at all. I am glad to see that the Attorney-General nods his head in agreement. Before we begin to consider subsection (1) we must remember that the man will have been engaged in a sort of deliberate avoidance of tax as a profession which the whole Committee is trying to stop. Am I not correct about that?
I am very grateful to the hon. Member for Sowerby (Mr. Houghton) who made my speech very much better than I could have made it, but I am bound to say, without, I hope, excessive reflection on him or on the Chair, that I never did find out what was the point of order upon which he was able to make his speech.
But I was not seeking to call it a point of order. It might be said to be a kind of rule evasion some of us believe every bit as bad as tax evasion, because it goes to the source of Parliamentary action. I had got my speech already boiled down to about eight words, but now the right hon. Gentleman the Member for Sowerby—Of course, he is not right hon., but I am sure that he should be right hon., though I hope he never will be. He rather knocked me over, not by excessive verbosity.
I deeply sympathise with the Attorney-General, and I quite understand him, but I did not draft the Clause, and if he did not, at any rate he has responsibility for cooperation in the drafting of it. The Clause is so drafted that it is very difficult to find out what the main thing about it is until one gets into the middle of it, by which time one is almost certain to be in the Smoking Room or in bed. That was not my fault. I am quite willing to understand that we ought, because of this drafting, to let the whole thing go by on the nod. That would save us all considerable time, and would please the Chief Whip, and the Opposition who want this sort of stuff anyway.
I can quite see all that, but what I want to know is, if so, is there any risk, when we do get to subsection (2, c), or even to subsection (2, a), that we shall then be told we ought not to make requests for clarification, either on grounds of order by the Chair, or by Gentlemen on the Ministerial Bench; that we are then to be told, "Oh, you ought to have asked me that before if you wanted to know"? I very much want to know all about the words:
one of its main objects".
I am not certain what is the best time to ask that question. This is obviously one occasion on which it could be done. The last thing I wish to do is to distress my right hon. and learned Friend. If it is clear that we are going to be allowed to go back to questions of that sort, and demand clarification both from the financial and the legal authorities who are leading us, there is something to be said for letting the Amendment go now.
I agree and sympathise with what has been said by my right hon. and learned Friend the Attorney-General and my hon. and learned Friend the Solicitor-General, but the matter that I wish to raise arises on this part of the Clause, and on the Amendment moved by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). It is because I entirely agree with what has been said by the Attorney-General and the Solicitor-General, namely, that subsection (2) is dominant, that I do not think we need all the words in subsection (1).
The purpose of subsection (2), which we shall discuss later, is to set out the different ways in which tax avoidance may take place. The difficulty in which we find ourselves arises from the fact that almost everybody in the Committee has refused to refer or advert to the type of tax dodge covered by the Clause. It is essential to illustrate at least one case, at the risk of somebody taking advantage of it.
I agree with every word uttered by my hon. Friend the Member for Wolverhampton, South-West, but I do not think that he has managed to bring off what he wants in his Amendment. I wish he had; I know that he and his colleagues have worked very hard on this matter. I would tell the right hon. Member for Battersea, North (Mr. Jay) that no lawyer in this Chamber will pretend that he has a full grasp or understanding of the Clause. I certainly do not claim to have such an understanding; I rely upon the advice of tax lawyers at the Bar for every word I say. There is nothing original in the content of what I am putting before the Committee, and I have little doubt that practically all those making their speeches in this debate had a great deal of advice from the experts before seeking to speak.
In previous speeches the Attorney-General and Solicitor-General have said that their object is to catch the person not engaged in bona fide commercial practice. This type of tax avoidance is carried out by means of one of a number of systems, and the Government want to prevent any of these systematic tax avoidance methods from continuing under the tax law. They are all unfair, and none are bona fide commercial practices, and in this case I think that it is justifiable to put the burden of proof upon the person indulging in them to establish that there are bona fide commercial reasons for them, and that it is in the bona fide course of making and managing his investments that he undertakes them. It seems to me that that is sufficient. I cannot see that we need the words:
none of them have as their main object, or one of their main objects, to enable tax advantages to be obtained.
I will show exactly why I say this. I have always understood that the purpose of the Stock Exchange is for a company to pay to the recipient as large a dividend as possible out of profits, while allowing a proper amount to go to company reserves. The dodge to which I am about to refer is not a dividend strip or a bond wash. Let us suppose that I conduct a company which, at the end of the year, makes a profit of £100,000. Let us further suppose that I then decide to pass the whole of that profit to the shareholders. The shareholders will naturally be inclined to invest in my company. They will say, "This is a very generous director," and the consequence will be that the shares will rise on the market. I shall, therefore, be able to sell my shares quite easily, to somebody who will obviously be delighted to buy them, and I will be doing so at a much higher price, tax-free, than I could get if I put part of the profit to reserve. Charities pay no tax and consequently look for the high dividend, and would go to a company offering such a dividend.
Subsection (2) ties up with subsection (1). Subsection (2) refers to a person who
being entitled to recover tax in respect of dividends received by him…receives an abnormal amount by way of dividend.
Now let us consider the difficulty that arises. In fact, the determination of abnormality in regard to a dividend is an extremely difficult matter. Let us suppose that I have a bookmaking business and that I run my company for three years. I may decide, legitimately and honestly, and without any thought of tax avoidance, that I do not want any reserves, and that I do not want to build up goodwill; I want to sell and get out as quickly as possible. Consequently, I deliberately give away all the money in dividends and put nothing to reserve.
Some people might think that I was giving away an abnormal amount by way of dividend, but nevertheless I would not be engaged in tax avoidance. The majority of concerns, especially manufacturers and those engaged in heavy industry, put substantial amounts to reserve, but others may wish to distribute a large amount of money by way of dividend in one year, and that may appear to be abnormal. That is the difficulty. We are not dealing with a form of tax avoidance such as a dividend strip, or a forward strip. We are not dealing with pre-acquisition assets or bond washing; we are dealing with something which amounts simply to the payment of an excessive dividend in order to obtain a quick rise of share values in the market, so that they can be sold at a high price.
As I understand it, that is in accordance with the ordinary accepted practice of the Stock Exchange. If so, we are faced with a difficulty if we do not amend subsection (1). Let us take the example I have given. The whole of the profit of £100,000 is given away in dividends. The person concerned is brought before the Commissioners of Inland Revenue and will be able to establish that the operation was carried out for bona fide commercial reasons, in the ordinary course of managing and investing. But he will never be in a position to be able to say that the operation did not also have the object of gaining a tax advantage as one of its purposes.
With subsection (2) no board could ever recommend a dividend which might in any circumstances be regarded as abnormal, for fear that it would be said that it had tax avoidance as one of its main objectives, because it is a very delicate question. If, for example, Shell—a company of the highest repute—were to say that next year it would be more liberal in its dividends, the shares would go up in value and the directors could gain a tax-free capital gain.
This is one of the most difficult tax problems that I have seen confronting this Committee. The advice that I have had—and hon. Members will also have had advice from similar sources—makes it no easy matter. It may mean that one or two people may go free. We have arrived here at the difference in view between my hon. Friend the Member for Carlton (Sir K. Pickthorn) and myself. I certainly come down on the side of constitutionality, and would rather that the law should not be unduly tweaked by the Treasury, as against those who say, "We do not give a tinker's cuss for the law provided we stop tax dodgers."
People who hold that view fall into the category of those who want to give complete discretion to the Inland Revenue, a complete dictatorship—[HON. MEMBERS: "No."]—yes, they do, because if the law is not clear it means that the tribunal will decide it. Where a proof of negative of this kind was required one would not be able, in the example that I have given, to discharge the onus of establishing that negative. Once a dividend was shown, one would be in that difficulty.
What is to be the outcome? In subsection (I) I believe that the answer is to reject the words
…bona fide commercial reasons or in the ordinary course of making or managing investments,…
and to insert other words, and also to consider whether subsection (2) can be tightened up.
I do not like the negative in subsection (i). I should like to see the purpose of this Amendment carried out in such a way that those who advise their proper and normal clients on these matters—I am glad that I am not one of those advisers—can do so with some certainty. I believe that, provided the circumstances are sufficiently delineated in subsection (2) so that the system of tax avoidance can be seen by those responsible, the tribunal will soon be able to determine what falls within the bracket of tax avoidance and what does not.
This debate has disclosed a great deal of agreement, not only on this side of the Committee but between both sides. My hon. and learned Friend the Solicitor-General gave an undertaking that he and his right hon. Friends would try to make the test in this subsection more factual, and the right hon. Gentleman the Member for Battersea, North (Mr. Jay) said that we would all like to make it more factual and objective.
When I associate myself with those expressions, what I mean by the words "more factual" is that if possible we should like the taxpayer to have something definite to prove, something which is not a negative, and something which refers to himself and not to other people. I feel that we are all impressed with the difficulties of debating this matter further without the full scope of the Clause in front of us, and that we can more usefully look at the Clause as a whole when it has been deployed at a later stage. I therefore beg to ask leave to withdraw the Amendment.
I beg to move, in page 22, line 11, to leave out from "the" to the end of line 12, and to insert:
transaction, or the last of the transactions, as the case may be, was carried out.
This Amendment is of a simpler nature than any other that we have considered up to now. I need not detain the Committee long in explaining it. In Clause 26 there is a proviso which reads:
Provided that this section shall not apply to him if the time at which he was first in a position to obtain the advantage fell before the fifth day of April, nineteen hundred and sixty.
As I understand that proviso, it is clearly a statement by the Chancellor that this Measure is meant to have no retrospective effect. It is a clear statement that, in view of the very great complications involved, it would be manifestly unfair to make it retrospective. Having read it in that sense, however, I am left somewhat in the dark as to the exact meaning of the words:
…the time at which he was first in a position to obtain the advantage…
This Amendment, if that is the intention, would make it completely clear. If the Amendment were accepted the proviso would read:
provided that this section shall not apply to him if the transaction, or the last of the transactions, as the case may be, was carried out before the fifth day of April, nineteen hundred and sixty.
That, to me, is an unequivocal, unambiguous statement. Both sides of the Committee would welcome a statement about the Government's intention. If it is their intention that the Clause should not be retrospective in view of its com-
|5||(a) in connection with the distribution of profits of a company, or in connection with the sale or purchase of securities being a sale or purchase followed by the purchase or sale of the same or other securities, the person in question, being entitled (by reason of any exemption from tax or by the setting off of losses against profits or income) to recover tax in respect of dividends received by him, receives an abnormal amount by way of dividend; or|
|10||(b) in connection with the distribution of profits of a company or any such sale or purchase as aforesaid the person in question becomes entitled, in respect of securities held or sold by him, to a deduction in computing profits or gains by reason of a fall in the value of the securities resulting from the payment of a dividend thereon or from any other dealing with any assets of a company; or|
I must advise the Committee not to accept the Amendment, not because there is any difference between us in principle but because it would not be wholly effective for its purpose. The intention of this proviso is to ensure that Clause 26 should be in no way retrospective. There, we are on completely common ground. We drafted this proviso with that end in view.
Since my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) tabled his Amendment, we have again looked at the wording of the proviso and are not entirely satisfied that it completely achieves the absence of any retrospective element. For instance, all the transactions might have been completed before 5th April, 1960, but the person might not have been in a position to obtain the advantage until after that date. We would, therefore, like to look at the wording again.
We feel that the Amendment is also not wholly satisfactory in that one might get the transactions completed before 5th April, but then some alterations in the company's articles, or some other action, might bring it within the scope of this Clause. Therefore, I ask my hon. Friend to be good enough to withdraw the Amendment, on the assurance that we shall try to amend this proviso in such a way as to make it absolutely clear as was always our intention that it contains no retrospective element.
|(c) the person in question receives, in consequence of a transaction whereby any other person—|
|15||(i) subsequently receives, or has received, an abnormal amount by way of dividend or|
|(ii) subsequently becomes entitled, or has become entitled, to a deduction as mentioned in paragraph (b) of this subsection.|
|20||or in connection with the distribution of profits of a company, a consideration which either is, or represents the value of, assets which are (or apart from anything done by the company would have been) available for distribution by way of dividend or is received in respect of future receipts of the company or is, or represents the value of, trading stock of the company, and (in any case) the said person so receives the consideration that he does not pay or bear tax on it as income.|
|25||In this subsection references to profits include references to income, reserves or other assets, references to distribution include references to transfer or realisation (including application in discharge of liabilities), and references to the receipt of consideration include references to the receipt of any money or money's worth.|
As the Committee realises, subsections (1) and (2) of this Clause define the limits of the operation of the Clause. In passing, I must emphasise that those limits do not depend on the whim of the Executive and we want them settled, as the Bill proposes, by Parliament. We have sought by these subsections to define as closely as we can the conditions which have to be satisfied before any question of nullifying a tax advantage arises. The case must fall fairly and squarely under subsection (2) and there must be a transaction in securities which puts a person in a position to obtain a tax advantage as defined by the Act Only if those three conditions are satisfied, that the case falls within subsection (2), that there is a transaction in securities and that it leads to a person being in a position to obtain a tax advantage, can this provision apply.
It is of importance that we should get subsection (2) right. As I indicated a short time ago, it is perhaps more important to get this right than to discuss the actual terms of the let-out, important though those are, because the more precisely we can define the limits and scope of subsections (1) and (2) the less weight will have to be placed on the let-out provision.
I say straight away that we appreciated the doubts and criticisms which have been expressed, both on Second Reading and since, with regard to subsection (2) and particularly in regard to subsection (2, c). That is not at all an easy subsection to understand and we have redrafted it in an effort to make it clear. I hope that we have succeeded in making it slightly easier to understand. I also say straight away that it is not the intention nor the desire of the Chancellor of the Exchequer to bring within the scope of the Clause any transactions which we would all regard as legitimate.
I think the vast majority of the examples put forward of the kind of legitimate transaction which might be caught by this Clause are, as I shall seek to show, not in fact caught at all. While I think that the Amendment which I am moving is a considerable improvement on the original subsection, I also want to make clear that my right hon. Friend and I will carefully consider any suggestions which may be made, and it may be possible, perhaps, to improve this part of the subsection still further on Report.
I do not want to weary the Committee by going into any great detail of the lamentable history of dividend stripping and bond washing. The Committee will remember, however, that we first endeavoured to deal with dividend stripping in 1955. Then the process was comparatively simple. Shares in a company were sold to a person either entitled to tax exemption or entitled to deduct the depreciation in the value of those shares in the assessment of his profits and gains and to recover tax. The shareholders got the value of the reserves of the company free of Surtax as the price of their shares.
I ask the Committee to bear in mind that one of the beneficiaries of those transactions was the vendor of the shares who escaped liability to Surtax. The purchasers of the shares then took the company's reserves as a dividend and, if they were a dealing company, they claimed back tax on the artificial loss, the depreciation in the value of the shares due to the distribution of the dividend which they themselves had received. If the buyer was a person exempt from Income Tax, he claimed back tax on the whole dividend.
So we had in that simplest case three categories of person who came into the dividend stripping operation, the person entitled to recover tax in respect of dividends received, the person entitled to deduct the fall in the value of the securities resulting from the payment of the dividend or other dealing with the assets of the company and, the third category, the vendors to the dealing company or the person exempt from Income Tax. One finds no matter what the form of dividend stripping may be, whatever combinations or permutations—and there are many—that all categories are present in any dividend stripping operation.
We find two of them, the person entitled to recover tax and the person entitled to deduct tax, present on the bond washing operation. So we confine subsection (2) to transactions by persons of those three categories. As the Committee will see, paragraph (a) deals with a person
entitled (by reason of any exemption from tax or by the setting off of losses against profits or income) to recover tax in respect of dividends received by him, receives an abnormal amount by way of dividend".
Paragraph (b) covers the category of persons entitled to make deductions
in computing profits or gains by reason of a fall in the value of the securities resulting from the payment of a dividend thereon or from any other dealing with any assets of a company".
Paragraph (c) covers two categories. One is the category I have already mentioned, the vendor to the dealing company or to the person exempt from Income Tax. This is covered by the first part of the paragraph,
the person in question receives, in consequence of a transaction whereby any other person"—
That refers back to paragraph (a)—and,
I shall deal with the other category which paragraph (c) covers a little later. We are saying here, first, that the only transactions which come into the question at all are transactions in which one or other of these three categories of person appears.
Perhaps I had better say a word or two about the present situation. I have outlined as briefly as I could the original, and what I might call the fundamental, form of dividend stripping. As the Committee knows, we have tried to stop, and have stopped, other particular variants of dividend stripping. New variations of the same operation have been developed since the last Finance Act. I do not propose to weary the Committee by referring in detail to all the forms of which the Revenue knows. They are very complicated, but I think that there are two to which I should make particular reference because they show the nature of the problem and its complexity. They also show that the method adopted by this Clause is the right and, I think, the proper way of tackling the problem.
The two forms to which I want to refer are the stripping of current and future dividends and what I might call stock stripping. The 1955 legislation covered only dividend stripping of profits. The stripping of accumulated current and future dividends is a device by which the future profits of a company can be secured without liability to Surtax. Putting it as simply as I can, and again there are many variants of this, the process is as follows.
A class of shares is created, earning for, say, six years ahead a very large annual dividend limited by the profits of the company available for distribution. That class of share will, say, for six years take all the profits out of the company and nothing will go to the ordinary shares. Those shares, having been created, are sold to a dealing company for a price which is broadly equivalent to the amount of the total dividend payable on those shares over the last six years. So the vendors of the shares will collect the equivalent of the company's distributable profits for six years as the price of these shares and as a capital payment free of Surtax; whereas if this transaction had not been effected and distribution had been made in the ordinary way the liability to Surtax would have been created on the dividends distributed.
The dealing company, having got the shares, writes down, as it is entitled to do, their value as the dividends are paid because these shares are entitled only to dividends for six years, so creating losses against which the tax paid by the company and deducted from the dividends is repayable by the Revenue. That is how the dealing company gets its profit, by getting repayment out of the Revenue. At the same time, the shareholders are getting the capital value on the distribution which they might otherwise have had in the next six years. I am sure that the Committee will appreciate that this is a very serious device and very dangerous to the Revenue. The use of this device is growing and I am sure that the Committee will appreciate that it may involve very large amounts of tax.
Stock stripping, of which there are also a number of variants, consists of stripping a company of stock instead of the liquid assets. The stripper, a dealing company, acquires the share capital at a relatively high price and it then acquires the stock at a low price and sells that stock at the market price, so that prima facie it makes a profit on the sale of the stock.
The dealing company then sells the shares, which are worth far less than the sum paid for them because the trading stock has gone, and so the dealing company suffers a loss which it sets off against the profit on the stock. The result is that the Revenue loses Income Tax on a large part of the profit on the trading stock and the shareholders in the original company take their profits in the price which they receive for their shares in a capital and non-Surtaxable form.
The Committee will see that in these two forms of stripping the same parties appear—the sellers who get a capital sum for their shares, the equivalent of the profits or reserve free of Surtax, and the buyers, who can secure repayment of Income Tax either on account of exemption or because they can create a loss. But cases may exist, and perhaps do exist, where the buyers alone may benefit; for instance, where the sellers are not liable to Surtax. Cases may also occur where the sellers only may benefit by avoiding Surtax and the buyers cannot claim repayment of tax.
We find throughout that the people engaging in this kind of operation fall into one of these three categories. That is the reason why they have been so clearly stipulated in the revised draft of subsection (2). I hope that I have said enough to satisfy the Committee that it will not suffice just to prune the dividend-stripping tree. Past history shows that that leads only to the putting out of new branches. The time has come, I suggest to the Committee, when the tree has to be cut down, and that is the object and purpose of this Clause.
It is wrong to say—some people have said it because they have misunderstood the Clause, which is not easy to understand—that it gives a wide general power exercisable at the discretion of the Revenue directed against tax avoidance. It does no such thing. Subsections (1) and (2) clearly limit the scope of the Clause to doing what the Chancellor said on 7th April, that is, to stop people
…getting profits or reserves or assets out of companies in such a way that, in the end, the Revenue would lose the tax that has been paid, or would fail to collect tax that ought to be paid."—[OFFICIAL REPORT. 7th April, 1960; Vol. 621, c. 691.]
and to stop bond washing.
Bond washing was dealt with in the Bill partly by paragraph (b) and partly by the last three and a half lines of subsection (2). In our new draft the Committee will see that it is clearly brought within paragraphs (a) and (b). Perhaps the Committee does not desire me to say any more about these two paragraphs.
Paragraph (c) deserves and requires a fuller explanation than I have already given. I have dealt with one type of case which it covers. It covers two general types of case. One is that of the vendor of shares who avoids Surtax by getting a price which represents, in effect, past or future profits. The second type of case is also the stripping of the assets of a company in such a way that distribution takes place of the assets of the company and the tax which ought to be paid on the distribution is avoided.
One of the devices aimed at here is, for instance, the creation of bonus shares followed by a corresponding reduction of capital. The creation of bonus shares alone would not come within the Clause because that does not involve a distribution of profits. One of the conditions prescribed in the Clause is that the circumstances of the transaction must be in connection with the distribution of profits of a company. The creation of bonus shares does not of itself involve a distribution of profits, but a distribution of profits in such a way that tax is avoided is caught by the Clause. One example which would be caught is the repayment of share capital at a large premium coming from accumulated profits.
But I want to make it clear that three conditions have to be satisfied before the provisions in paragraphs (a), (b) and (c) apply. There must first be a transaction in securities, which is referred to in paragraph (b), and this can include a new issue of shares or an alteration of rights attaching to shares. Secondly, there must be a distribution of profits or assets at the time. Thirdly, there must be the receipt of something representing distributable assets, which normally would be liable to tax, in non-taxable form. Thus, a bonus issue of itself is not caught, because it does not involve a distribution. Indeed, it normally represents a desire to make the nominal capital reflect the real capital employed in the business. The case would be different if the bonus issue were followed by a reduction of capital so that cash left the company.
Secondly, a sale of shares, even if they represent a recently made bonus issue, of itself is not caught. Thus, there is no question of the common case of a sale of shares to the public when a private company becomes a public company being within the Clause. The reason is that, here again, there is no associated distribution of profits or assets of the company.
I cannot go into all the details of all the types of case, but my right hon. Friend and I will willingly consider any cases which are put to us to see whether they come within the Clause because it is our objective, just as it is the objective of my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) to make this Clause appear to be fair and to be fair, and at the same time to make it thoroughly effective and vigorous in its limits. The essential thing is to get those limits rights. We believe that by a redraft of subsection (2) we have done a good deal to clarify the position, and I hope that some of what I have said has removed some of the doubts and misapprehensions which were felt about the Clause.
Putting it quite shortly, it will be for the Revenue in the first place to say whether it thinks that particular transactions come within the scope of the Clause. If the Revenue is satisfied on it, it will give notice to the taxpayer concerned. Under an Amendment which we shall consider later, the taxpayer will then have the right to go straight to the tribunal and get its immediate decision on the issue whether there is a prima facie case against him. If he succeeds, that will be the end of the matter, but even if the case comes within the four walls of subsections (1) and (2) as being transactions involving securities resulting in the person being in a position to obtain a tax advantage in the circumstances set out in subsection (2), where one of these three categories of persons is operating—even then, if it comes within all that and the Revenue is right about it, under the Amendment which we have been considering a let-out is left to the taxpayer, if he can discharge it. Following that, there are the rights of appeal which we shall consider later.
I am sure that we are all most grateful to the Attorney-General for the lucid exposition of what the Amendment means, but no doubt he also understood what the original draft in the Bill meant. I agree that the Amendment is clearer than the original draft. Is there any change in substance between the two?
Frankly, I tried to understand paragraph (c), as it stood in the Bill, and at one time I thought I did understand it, but then I met the Revenue again and I realised that I was wrong. Now I think I understand it. There are two minor drafting changes. I am grateful to the hon. and learned Member the Member for Kettering (Mr. Mitchison) for intervening; I ought to have drawn attention to them. They have not altered the character of the Clause but they have improved its operation slightly.
Attention was drawn after the Bill was drafted to a particular device which could be operated through a bank. It is not a complicated device. The Financial Times suggested a method which could be used but no example of that has yet come to notice. It seemed to me prima facie too simple to succeed, but there is a variation of it which might be done. I will not deal with it in detail because it would weary the Committee. It is another form of stripping.
The wording of paragraph (c) has been slightly altered by the enlargement of the definition at the very end by adding the words:
including application in discharge of liabilities.
There was a possible way—I hope that I am making this clear—whereby the assets could be stripped by borrowing at a high rate of interest, then the money being lent back at no rate of interest, followed by claims, it being said that the assets of the company were being applied in discharge of those notional liabilities. This case is covered.
I do not think that there is any other alteration, as far as we can see, between the effect which was intended to be achieved by the original subsection and the effect which we believe is achieved by this.
That is a very difficult question for me to answer, because I was left in a state of some uncertainty as to what paragraph (c) in the old Clause meant. At one time I thought I knew, and then I realised that I did not know. The Revenue and myself are in entire agreement about the present Clause.
Will my right hon. and learned Friend answer one question before he sits down? He referred to the Financial Times of 17th May, 1960. This is what the Financial Times said about Clause 26 (2) (c):
There simply isn't any justification for Clause 26 (2) (c) and it should be thrown out in committee stage. There can be ample protection for the Revenue if it's laid down that no tax advantages shall follow transactions unless it can be shown that there was a reasonable business justification for them.
The advice of the Financial Times was that we should chuck out that subsection (c) and my right hon. and learned Friend has not given the Committee any tangible or logical reason today for the differences which undoubtedly exist—I do not know whether they are of substance—between the original paragraph (c) and the redrafted paragraph (c). The Financial Times is a powerful organ and generally quite authoritative.
Order. I hope that the hon. Member for Kidderminster (Mr. Nabarro) will bear in mind that he said that he was speaking "before his right hon. and learned Friend sits down."
I think that I have heard enough to appreciate the general trend of my hon. Friend's remarks. All I can say to him is that it is absolutely clear from reading that article—which I also read—that the Financial Times had wholly failed to understand paragraph (c)—
I always like to be in good company. I said that I thought I understood it, but from that article it is quite clear that those with the Financial Times never got anywhere near to understanding it. I am hoping that this redraft will at least let some light dawn on them as to what the paragraph intends, and what I believe it does, and does effectively.
Perhaps I may reiterate that We do not want this Clause to include any cases which we would all regard as legitimate transactions. We do not believe that, as now drawn, this wording is capable of including such cases, but if we found that it did we would certainly seek to improve the wording.
The hon. Member for Kidderminster (Mr. Nabarro) must take comfort in the fact that the subsection (2, c) which the Financial Times said should be thrown out was the old subsection (2, c). So far as I know, that newspaper has not commented on the new wording, but since neither the Attorney-General nor the Financial Times appeared to understand the other, we must await their further verdict on the revised version.
We are all very grateful to the right hon. and learned Gentleman for the care he has taken in explaining the Amendment. While he was speaking, I thought, "Now we know more about the kind of transactions that this Clause seeks to check, and we also know more about the sort of people who take part in those transactions." When I listened earlier to the references of the hon. Member for Wolverhampton, South-West (Mr. Powell) to the need to avoid cynicism in relation to our tax law, the sort of cynicism he thought that we should avoid was that which I discerned, I think, in the heading of an article in The Accountant for 16th April, "Heads we win; tails you lose."
I suggest to the Committee, however, that it is not that cynicism we have to fear most, but the cynicism of the great mass of taxpayers who say that the whole thing is riddled with fiddles; the attitude of the ordinary taxpayer who believes that those who are better off and better advised can swindle the Revenue left, right and centre.
I wonder what sort of companies these are that are treated in this way, that are stripped of their stocks and stripped of their accumulated reserves in order to make a Roman holiday for those who are seeking to get tax advantages? Who are the workers in these companies? What do they think—if they know what is going on? What contribution is all this making to increased productivity and the wealth of the nation? I think that that is the background to this amended subsection that we must have in mind.
Had we heard of this before we dealt earlier with the proposed Amendment to subsection (1) I think that we should have had rather less sympathy with the plea to avoid punishing the innocent in the pursuit of the guilty. It seems to me that all transactions covered by this proposed subsection are, prima facie, suspicous. I wonder whether there are any innocent parties in all this. If they are innocent, they are outside the Clause, and if they come within the Clause I think that the chances are that they are guilty.
There are two ways of dealing with this problem. One is precise definition—prohibition in specific terms. We have tried that. We prefer it. The whole Committee would prefer it, because in that way we would know what we were doing and everybody else would know as well. When we have decided that certain transactions are, on the whole—though there may be some innocent cases—taxation-avoidance devices, we prohibit them specifically and expressly in the law, and thereafter there is no need to worry about motives. What we do is to rule them out by the very nature of the transactions that fall under the prohibition.
The fact that we are today discussing this subsection, and the Clause as a whole is an acknowledgement on both sides of the Committee that we have reached the limit of precise definition against this type of tax avoidance. We would not be discussing Clause 26 or subsection (2) if we could deal with the matter by alternative means. I think that we must acknowledge that previous attempts over five years have lamentably failed, and that the Committee is now justified in trying another remedy, however reluctant we may be to embark on it.
The other alternative is the Australian method, adopted in 1959. The Australian Act of that year included a sweeping prohibition against almost anything and everything that would result in reduction of tax liability by contrivances of one kind or another. That Australian law is only a year old and how it is working I do not pretend to know, but it might be worth watching to see whether there is anything there that we might one day adopt here.
For the present, we are adopting this middle course by defining as closely as we can the nature of the transactions that may be called into question though realising that the motives of those taking part in them may be called to judgment. I fail to see how one can operate a Clause of this kind unless the motives of those who take part in those transactions are called into question and are subject to judgment.
Motives are an important part in deciding whether a transaction is tax avoidance or normal commercial practice. A Clause like this is the only alternative to more, specific definition. I wonder whether any of this falls within the scope of the Jenkins Committee? I think that some aspects of this manipulation probably go beyond the scope of our tax law. I cannot feel that a lot of this does any good to the country, to the businesses concerned or to the people who work with them.
It is merely a field of activity into which people have moved in order to satisfy their acquisitiveness, rapacity and greed, and that is to be condemned. If I may say so, I do not think that we can really be too fastidious about catching a few innocent transactions when the overwhelming number of the transactions will undoubtedly have the object of tax avoidance.
The Attorney-General says that the revised Clause is not fundamentally different from the original one and that the main change is in paragraph (c) which is a little more specific and a little easier to understand than the original version. But I emphasise that the Attorney-General is absolutely right in this respect, that if we can define the nature of the transactions that we are out to catch and if they are defined not only clearly but as narrowly as possible consistent with stopping the devices that we are out to check, everything else in the Clause will fall into place.
We can then consider what the taxpayer has or has not to prove. We can consider what remedy the taxpayer may have—his right of appeal and that sort of thing—in better perspective when we are satisfied that the transactions that we are out to stop are clearly identifiable as mainly anti-avoidance devices. If we provide an opportunity for the taxpayer to show in the odd case, or in any case, that that was not the purpose of this transaction—if that right of appeal is there—there is a complete safeguard for the taxpayer, and the major purpose of the Clause will not be frustrated by too cumbersome a provision for either proof or appeal. If the Clause is clear and if our purpose is clear, then there is no need to clutter up the Clause with excessive provisos relating to onus of proof or appeal.
I always envy the hon. Member for Sowerby (Mr. Houghton). We all know that there is nothing like leather and great is Diana of the Ephesians. The hon. Member's leather and his Diana are the getting of revenue, and a highly respectable object. It must be very easy to be sanguine in these debates, if I may use an offensive vulgarism—but, as the hon. Gentleman will know, without meaning it—if blood sucking is to be the main and principal human activity, and if all other considerations, including the risk that some innocent persons may suffer, are to be forgotten.
The hon. Gentleman said that the method of precise definition had failed. Of course, all the methods of every sort of legislation have failed in the sense that there is no sort of legislation which has produced all the good that is expected from it and none of the harm, and against which later depravities have not produced new evils. What has precise definition failed to do? I understand from the hon. Gentleman and from the Attorney-General that they do not doubt the capacity of precise definition to deal with paragraphs (a) and (b), as those paragraphs are now up to date, and they are inclined to think that those paragraphs as they now are have reached something like complete growth. So paragraphs (a) and (b) should in the future be dealt with by the precise definition method.
Our main argument is about paragraph (c). It is an odd way to legislate altogether. Now, when we have come to the crux of the matter, we have polite agreement between the two extremely learned gentlemen—one in the Parliamentary sense and the other in the even more relevant sense. The one on the Opposition Front Bench and my right hon. and learned Friend both agree with each other that they never really did understand paragraph (c) as it was before, and neither of them, I may fairly say, makes any very successful or very effective effort to make sure that the rest of us, poor mutts, understand it either.
I am the more inclined to think that they made no very serious effort, because if we look at the new paragraph (c) it contains some obvious errors of drafting on the face of it. For instance, when we come to paragraph (c, ii) we have to distinguish between "the person in question" and another person. The second person is necessary to the delinquencies of the first person, and as the provision is drafted, even if it were properly punctuated which it is not, I do not believe that anybody could tell what is the moment at which person B steps off the court—that is not a very good simile perhaps; shall I say "steps of the horse"—and person A gets on it.
Anybody who tries to write it down in drawing room or four ale bar language, as I did—and if much provoked I will read it to the Committee—will find that it is extremely difficult to make that distinction to see where the second person who has been introduced has been pushed off the stage again and he and his become relevant to the first person. This is made all the more difficult because after the word "subsection" in sub-paragraph (ii) there is a full stop which ought not to be there. Even if this were perfectly simple, as it now stands, it would not be very easy to understand, and nobody has explained it to the Committee.
Similarly if we look at paragraph (b)—and here I speak not so dogmatically, but I am prepared to take bets in the Smoke Room afterwards—paragraph (a) relating to what I call the criss-cross sale and purchase, we find that Mr. P sells to Mr. Q and criss-cross; the man who has sold to the other one buys from the other one. That is what I call crisscross buying and selling.
If the hon. Gentleman will read the Bill he will understand, although he will find that what I am saying is plainer than the Bill.
We find in paragraph (b) the words:
or any such sale or purchase
but, with every respect to the draftsmen, that surely cannot be enough to get what they seek to achieve. It is not "any sale or purchase". It is a combination of sales and purchases—what I call crisscross selling and purchasing. If that were not so, it would be nonsense. It is a very odd way to legislate. If I am wrong about all this, and the Attorney-General understands all about it—
The last point that my hon. Friend has made does not stand up for a moment. The words
any such sale or purchase
must be read also with the words "as aforesaid", and they refer one back straight away to the references to sales or purchases in paragraph (a). There is no doubt that the drafting is absolutely right.
I said that I placed less weight on this part of the argument than on any other part, although I am prepared to stand up for it. It ought to be something like: "any such relation between purchase and sale or combination of sellings and buyings" or something of that sort if it is to be made clear that it is referring to what, in fact, it is referring to in the previous paragraph. I do not think, really, that the precision method has been sufficiently tried.
What is it that the method ought to be trying to do? It ought to be trying to prevent new devices for tax dodging. I do not think it is any use supposing that there is a method—this, apparently, seems to be thought now by the hon. Member for Sowerby—which one can have to prevent all methods of tax dodging for the future. What ought to be aimed at is to see that any new method of tax dodging has no longer run than a very short one. I have never had it fully explained to me why the Inland Revenue should be more than a year or, at most, eighteen months behind the clever chaps. Should it be more than that?
Surely, the object of all this—I quite accept what the hon. Member for Sowerby says about it, in one way—is the primary concern of human life, as I began by saying; and, quite rightly, it should be. What is the object of the whole business—taxing and not taxing, paying taxes and not paying taxes? The object of the whole business is that the ordinary business of humanity should be carried on. If one will cause greater numbers of difficulties to arise and to take longer to be settled for ordinary and legitimate business, and if that is to happen more often than the stopping of tax evasion, then, surely, one is doing the opposite of what one sets out to do.
I should Like to ask the hon. Member for Sowerby, my right hon. and learned Friend or anyone else how certain he is that the business world will be able to find out how to behave properly about these things, to find out what are the intentions of the Bill in the mind of the Attorney-General, how those intentions are and will be interpreted by courts and tribunals and, accordingly, what are the modifications which ought to be made to the ordinary methods of business. That is the burden which we are putting on all ordinary people, anyway. Who dare say that by this method, although we shall save the Treasury the eighteen months under the precision method, by what one may call the shotgun method instead of the weapon of precision method, we shall not inflict on ordinary people and rather less ordinary people, accountants and lawyers advising ordinary people, a much longer period than eighteen months during which they will be much impeded and their conduct of business much decelerated by the legislation which is now before us? That, if I may say so, seems to be the major question to be asked upon this Amendment.
Perhaps I may be allowed just a few more sentences. I was promised earlier that I might be allowed to ask for an interpretation of the words:
one of their main objects.
I should like to do that now. I am accustomed to racing a boat sometimes going down by the Main and up by the Gull and sometimes going down by the Gull and up by the Main; but if there are three or four mains, how many gulls have there to be in order that there should be four mains? We are destroying the meaning of words. I understand "the main motive", but what is "one of the main motives"?—among how many? Can there be as many as three main motives? If so, there can hardly be less than four minor ones
We shall want an awful lot of psychiatrists to understand that one.
We are all indebted to the hon. Member for Carlton (Sir K. Pickthorn) who made some very valuable points. I must say that it has been a little difficult to follow everything he said, but the Clause is a very difficult Clause and the Amendment is a very difficult Amendment. I am sure that we are all grateful to him for drawing our attention to the fullstop in line 17, which, no doubt, will be put right.
The hon. Gentleman asked one very relevant question. Were we quite sure, he asked, that the ordinary person knew how to behave properly? I should like to put it the other way round: are we quite sure that, after reading this Clause, the not ordinary person, the would-be tax dodger, will not know how to behave improperly? Of course, whenever one sets out the circumstnces in which tax dodging is caught, whenever one shows the boundaries, one realises that there are two sides to each boundary and, at the same time, one is indicating the area where the tax dodger is now free to go. Therefore, having regard to the enormous losses which are being sustained as a result of dividend stripping and associated transactions, I think that we must all make the Clause as strong as we can. I entirely agree with my hon. Friend the Member for Sowerby (Mr. Houghton) when he says that no innocent person conducting an ordinary transaction need have any fear of this Clause at all.
I want to ask one or two questions about the meaning of the Amendment. First of all, I thank the Attorney-General for the redrafting, particularly in paragraph (c), which was no doubt stimulated by the Amendment in the name of my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) and myself which referred to the Clause as previously drafted. That point has been fully met in the new draft and I do not wish to pursue it. However, in line 11 there is a reference to
dealing with any assets of a company
and that omits any reference to dealing with the liabilities of a company.
I wondered why the Clause was restricted in this way. There are two methods of achieving an artificial alteration in the value of shares in order to escape tax. One is to deal with assets and the other is to deal with liabilities. It is much more simple and straightforward to deal with the assets and much more easily intelligible, but there are all sorts of ways of dealing with liabilities which have the effect of dealing with net assets, and it is with the net assets, surely, that one is concerned. Has consideration been given to the Clause to include variation in the rights of creditors, the rights attaching to debenture holders and commitments entered into by a company—methods by which liabilities are varied as to their amount and as to their impact on the company? If so, is the Attorney-General quite satisfied that the Clause is sufficiently strong, referring as it does only to assets? I doubt whether the definition of "assets" includes liabilities also. It does not appear to do so from the definition paragraph at the end of the Amendment. I regard that as a major defect in the drafting of the Amendment.
A minor point arises in line 25 where there is a reference to
income, reserves or other assets".
I do not want to be pernickety about this, but income is not an asset and a reserve is not an asset, at least not an asset in the ordinary parlance of accountants. I do not say that accountants are the people to define what is an asset, but I will put it in that way. I do not know whether it is the ordinary parlance of the law to say that income or a reserve is an asset. At all events, no accountant would talk about an income as being an asset or about a reserve as being an asset, or, indeed, talk about the distribution of them as a distribution of assets in the words of the Clause as originally drafted.
I suggest that the words "other assets" lead to great confusion, and I see no reason for the word "other". If the Amendment had stated merely
references to income, reserves or assets
I should have thought that that would have been clear. I do not know why it is necessary to have the reference to "other" assets, and I am sure that accountants on both sides of the Committee will share my view about that.
I fully support the hon. Member for Gloucester (Mr. Diamond) when he says that a reserve is a liability and that one cannot get away from that. I think that he is a good deal better than the hon. Member for Sowerby (Mr. Houghton), who I should like to see adopt a bit more of the "Lot" attitude. His attitude is that there is not one just man in the City and therefore the whole of this Amendment is all nonsense and he does not want anything to do with it. I think that that is the wrong approach to this matter and that the Committee ought properly to direct its mind to helping the just men that do exist in the City and not to pour brimstone and fire on the heads of everybody indiscriminately.
The hon. Member is being unjust to me. What he has described as my attitude is not my attitude at all. I confined my remarks to the scrimshankers who come into this racket. I am quite prepared to believe that people outside it are honest and respectable citizens.
I am sorry if I misjudged the hon. Member, but that is the way in which I interpreted the early part of his speech.
I agree with the Attorney-General that paragraphs (a) and (b) are narrow. What I should like to know is how broad is paragraph (c). However, before I leave paragraphs (a) and (b), I want to point out that there are, even within the class of person exempt from tax, quite normal people whose duty it is, as trustees for a charity, to seek an investment in which the return is extremely high. Take, for example, the pension fund of a trade union. It would be grossly wrong if its trustees did not seek to purchase their investments so as to take into account those which have the highest possible return, including the reclaim of tax and in doing so moreover to take into account double Income Tax relief and such matters so that they may get the maximum reclaim in tax possible and so the maximum return on capital. I think that we ought to ask whether they are not brought into a too wide Clause when the Attorney-General says that his intention is to have an extremely narrow Clause.
In the same way, under paragraph (b) there is the dealing company. Although the word is "or" between paragraphs (a) and (b), it might easily be "and" because the persons concerned may be advising a pension fund and be actually selling some of its investments which for certain reasons are much better held by the pension fund than by the dealing firm. We ought to know to what extent that could act to the detriment of the honest dealing firm. Suppose, for instance, that the country of Ruritania suddenly started to nationalise a company in Ruritania which had very considerable reserves. It is possible that the effect of that would be both to depress the value of the stock and to leave the British directors to have a very high distribution on the principle of a short and merry life before they are taken over. What would be the position of a pension fund in buying such shares and of a dealing house in selling such shares which had gone down in price notwithstanding the increase in dividend because of the threat of nationalisation?
Will the effect of paragraph (c) be as narrow as my right hon. and learned Friend the Attorney-General suggests? For this purpose I have to assume that the company has a Surtax payer, even one with one share in the company. I also have to assume that that company has at least a penny in distributable reserves. We know that the Chancellor's umbrella has been removed and that the Inland Revenue, properly, is doing its routine stuff. My right hon. and learned Friend mentioned the case of a private company becoming a public company. This would inevitably mean the sale of the equity, including all its distributable reserves to the public. As paragraph (c) is at present drawn, it seems to me that it would come within that—
I said that the sale of a private company for conversion into a public company would not come within paragraph (c). I hope that my hon. Friend will take that from me.
I was asking my right hon. and learned Friend quite how that would happen. I admit that I am not a lawyer and cannot easily understand these matters. It seems clear to me, however, that any law which allows the Inland Revenue to act in effect as a kind of Star Chamber—[HON. MEMBERS: "Oh."] The Solicitor-General recently mentioned the case of the 1951 Act in respect of Profits Tax. How does that operate with regard to a company with redeemable preference shares which, having many good reasons for so doing other than the avoidance of Profits Tax, wishes to retain those preference shares because they are blocking prior capital and wishes to raise money by prior capital on which no Profits Tax will be payable? At present that is, in effect, a Star Chamber judgment by the Inland Revenue in which the matter is made illegal, but one is allowed to breathe if the Revenue thinks that one's case is good enough. I think that every hon. Member wants to avoid that sort of thing if possible.
It would be much better if we could be told that paragraph (c) is very narrow and will exclude a sale to the public and the transactions which are bound to take place in ordinary selling or even liquidation matters, and how, if that liquidation includes reserves, it escapes from the mischief of this provision.
It seems to me that in pursuit of our object, which I think is shared by the whole Committee, of delimiting as narrowly and as accurately as possible the transactions which we intend to catch, the Amendment has carried us some distance further. With respect, I think that the words in the Amendment are a distinct improvement in clarity and in ambit on the words of the Clause as originally drafted.
I noted my right hon. and learned Friend's very candid undertaking to consider further improvements at a later stage, and in that connection I would particularly ask him to attend to paragraph (c). My right hon. and learned Friend's very clear exposition of this Amendment disclosed that paragraph (c) covers, and, one gathers, always had been intended to cover, two different types of transaction. The first is, if I am right in using the word, the counterpart either of the (a) transaction or of the (b) transaction. I think that that is quite clearly expressed by paragraph (c) of the Amendment, overlooking for the moment the words:
or in connection with the distribution of profits of a company…
It is those words which, as I understand, bring in the second category of case which is not the counterpart of paragraph (a) or (b) but is an operation on
its own which may be conducted between two parties or may, apparently exceptionally, be conducted inside one undertaking or by one party playing a game with himself.
One appreciates the type of tax dodge to which my right hon. and learned Friend referred under that category. What I want to ask him to consider, however, is whether he is not relying too much upon the interpretation of "distribution of profits" to exclude a whole range of operations, some of which were mentioned by my hon. Friend the Member for Bath (Mr. Pitman), which it was not the intention to catch. It seemed to me that it is only the narrow interpretation of the words "distribution of profits" which would exclude all sorts of normal transactions in which assets which would otherwise be available for distribution by way of dividend are disposed of. That is the main point which I wish to put to my right hon. and learned Friend.
The other point is whether the last line and a half, which defines references to the receipt of consideration, is necessary and whether it does not import more doubt than it removes. I have received advice—I do not know whether it is correct—that "consideration" is a term of art which is sufficiently understood without definition. Perhaps in his review of the Clause as I hope it will be amended, my right hon. and learned Friend will consider this point, too.
I hope that the Committee will forgive me for intervening in this matter, because I am neither an accountant nor a lawyer, nor have I had the opportunity of being in the Treasury. My right hon. and learned Friend the Attorney-General knows, however, that I have been extremely worried about the drafting of the Clause, in particular because of the drafting of subsection (1). My right hon. and learned Friend asked us to wait until we reached this Amendment before we made any final decision about subsection (1). I am still far from being entirely happy about the wording of subsection (1) now that I have heard what my right hon. and learned Friend has had to say.
My right hon. and learned Friend could put my mind considerably at rest, however, if he were able to say whether under paragraphs (a), (b) or (c) of the Amendment, he can cite any single practice which he thinks would fall outside the effect of the Clause: in other words, whether there is anything which would not be a ruse or abuse which ought not to be happening. Listening to my right hon. and learned Friend this evening, it was an education to know of the sort of ruses and abuses which people who do this sort of thing can get up to. They include bond washing, dividend stripping and, now, the new one of stock stripping. All these things are Greek to most of us, and thank heaven they are.
I cannot conceive how anybody can do anything which could possibly be regarded as a desirable thing to do from the public interest viewpoint if my right hon. and learned Friend's observations on the Amendment are correct. If he could answer that for me now it would put my mind greatly at rest. If he cannot do that, we then have to assume that there are some people who may be indulging in the sort of things which we set out to catch in the three paragraphs, which, however, do not have tax avoidance as their object.
We are then right back into subsection (1) at once, because that is where the motive is assumed to be unless the person who has indulged in the practice can prove the opposite. It is there that my main anxiety arises. Nothing has disturbed me. In listening to the debates both on the earlier Amendment and on this one, nothing has disturbed me more than the statement by my hon. and learned Friend the Solicitor-General when he quoted an earlier Measure to deal with Profits Tax. It is precisely because I have a feeling that in the future somebody else, at some time or other, will come forward and say, "But we did this in 1960, in relation to these bond washings and that sort of thing. Therefore, it is all right now to employ the method for something else." It is because of the precedent that that creates that I have the greatest anxiety.
I said at the outset that I have never been a lawyer. My right hon. and learned Friend will, however, know from his experience in the Office of the Judge Advocate General during the war that occasionally officers without much legal training either have to sit as members of courts-martial or act as prosecuting or defending officers.
Quite a number of the cases which I had to defend involved the question of desertion. The best thing one could hope to do when acting as defending officer was to make it impossible for the prosecution to prove that the man intended to stay away. The big issue was motive. My right hon. and learned Friend will know that the prosecuting officer often found it extremely difficult to prove the motive and the intention to stay away.
If it is to be a question of proving motive one way or the other in this legislation, the onus should be on the side of the Executive to prove that intention and not on the side of the accused to prove his innocence. This seems to me to be incorporating into the laws concerning finance roughly what we have to do about poaching. In other words, if a man is found to have a pheasant in his pocket which should not be there, what does he do? How did he get it there? He has to prove that he did not poach it.
I do not think that it has ever been held before that that sort of law should apply to finance. We are all appalled by these practices with which we are trying to deal. We all want to stop them. My hon. Friend the Member for Carlton (Sir K. Pickthorn) said just now that he thought the principle of the hon. Member for Sowerby (Mr. Houghton) was bloodsucking for the Inland Revenue. I have always felt, however, that taxation had one object above all other things: to ensure that the Queen's Government could be carried on and that the various laws which Parliament had passed could be implemented where public finance was involved and that the method by which it was effected were fair. It is on this last ground that the Clause falls down.
I do not consider it fair to make anybody, however suspect he may be in the minds of the Inland Revenue or anybody else, prove that he did not have a motive of a certain kind. That runs counter to the law on which we so rightly pride ourselves. My right hon. and learned Friend could put my mind entirely at rest at once if he were to say that there is no question of anybody indulging in these practices which we are trying to catch for any reason other than tax evasion.
If my right hon. and learned Friend can say that, the Clause can be recast and we can define the offences which are embodied in paragraphs (a), (b) and (c). We can make those an offence and anybody indulging in them will automatically have committed that offence and be punishable and given whatever penalty we decide. I would sooner have it like that than have subsection (1), by which somebody who was thought to be indulging in these practices with a view to tax evasion then has to prove that he was not doing it for that reason. I have no sympathy with those people, but I have great pride in the reputation of British law. We are not likely to improve it if we leave subsection (1) in the Clause.
This is about the most difficult Clause in the whole Bill, and we are dealing with the most difficult part of it. It has added to our difficulties that the Government Amendment was tabled so late as to make it almost impossible to bring the trained judgment on this vitally important Clause that it deserves. When the Clause was originally tabled, we had the opportunity of consulting the learned professions and the learned bodies of people concerned in the matter and, as a result, various constructive suggestions were made to the Government by the bodies involved. Those suggestions sank in with the result that we now have a new and amended Clause before us. Unfortunately, we have not had time to ask the learned bodies very closely again to look at the matter, and there has been only a scratch study of the new version.
Because of that, there has been some uneasiness in the Chamber, voiced by my hon. and gallant Friend the Member for the Isle of Ely (Major Legge-Bourke), to the effect that we are dealing with a matter of considerable importance in a fog, in a mist. I am bound to say, with all respect to my right hon. Friend the Attorney-General, that although in the kingdom of the blind he may well be king, he has not given us such confidence that he is on top of all the implications of the Clause. I shall be very pleased to be proved wrong about this, but I am particularly concerned with paragraph (c) of the Amendment. I will construe it to the Committee and I think that my construing will stand up to the scrutiny of my hon. Friend the Member for Carlton (Sir K. Pickthorn).
the person in question receives,"—
then comes the parenthesis—
in consequence of a transaction whereby any other person"—
that falls under subparagraphs (i) and (ii)—
or in connection with the distribution of profits of a company…
Leaving out that parenthesis, the Clause reads:
the person in question receives…in connection with the distribution of profits of a company, a consideration…
I absolutely agree with and accept and, in my humble way, support everything that the Attorney-General is doing to catch the professional tax avoiders, those who make a business of it, and to prevent this business from being carried on. It is a disgrace that it should be carried on, and we should bring it to an end. We can do that only in daylight.
In commending the Clause to the Committee, the Attorney-General mentioned three groups of people who were essential to the carrying out of these transactions. They were the dealing house, the gross fund which recovers Income Tax, and one other. I want to deal particularly with the gross fund, which is not in fact a business body at all. The gross fund is a charity which has a right, by its being a charity, to recover Income Tax, where it has been deducted, on its investments.
There is no doubt that over the last ten years a very much more enterprising view has been taken of the administration of the funds of charities than was taken before. There have been changes in the law which have enabled those who manage these bodies to take advantage of these concessions and, as a result, the incomes of well-managed charities have greatly increased. Those incomes have increased because the people who run the charities have taken advantage of the opportunities which are offered to funds of that sort which are in a position to recover Income Tax on their investments.
I take the point absolutely and completely that we as a Parliament make a contribution to charities in that we excuse them of tax on their investments, but we do not have it in our heads that we should give them a specially privileged position to enable people to rob the revenue because of the special position of charities. I hope that nothing I am now saying will be taken as indicating that I support a view of that sort.
However, I must say clearly and definitely that a well administered gross fund will very likely find itself caught by the position arising under paragraph (c)—the gross fund the person in question will receive in connection with a distribution of the profits of the company, a consideration which either is or represents the value of the assets. That situation will arise from the fact of a charity being a gross fund and for no other reason.
I should like to think that we could arrive at a form of Clause which would give a charity the right to run its investments as it thinks fit, without at the same time making it possible for the upscrupulous people against whom the Clause is aimed themselves to be able to profit by the advantages at law which the charity enjoys.
I have not had time to consider the Clause sufficiently to make any constructive suggestion on that point, but I leave the Attorney-General with this thought—that one of the main parties to this tax avoidance exercise is a group of bodies who are absolutely innocent of any evil intentions and who have no business to be caught up in a form of legislation which is directed at this base and offensive trade of tax avoidance. I hope that before we get to Report my right hon. and learned Friend will ask some of the Charity Commissioners, or other people versed in these matters, their opinion of the implications of what I have been saying.
Personally, I have found the debate very interesting and at times amusing. When the hon. Member for Carlton (Sir K. Pickthorn) called my hon. Friend the Member for Sowerby (Mr. Houghton) a blood-sucker, I felt that we were really getting on, and when the hon. and gallant Member for the Isle of Ely (Major Legge-Bourke) ranged through courts martial and poaching in his criticism of the Clause, I felt that he was taking a very broad view of the matter.
However, I have to say something quite seriously about the general content and objects of the Clause. It is advisable to make oneself as clear as possible and that is the object of the Amendment which we are now discussing. When one considers whether we ought to include or exclude certain types of activity, one is bound to remember the reason why the Clause appears in the Bill.
The reason is that over the years and in this Bill we have been trying to find language which would cover the activities of dealing in shares and companies and so on in a way which defrauds the Revenue or results at least in what is called in this important Clause a tax advantage of an unmeritorious character.
We have never succeeded in catching up with the people who practise this sort of thing and we could not have had a better illustration than was given in the Attorney-General's answer to me at the end of his own speech when he said that some things had cropped up during the interval between the original Clause and the amended version which we are now considering and which might not have been covered by the original version but which are covered by this version.
With respect, my right hon. and learned Friend the Attorney-General, in my recollection, did not say they had cropped up. He said that they were thought to be thought of which is quite a different thing from saying that they had cropped up. One cannot eat wheat which has been thought to be thought of.
"Cropped up" was perhaps a hasty way of putting it, but I think I have conveyed to the rest of the Committee broadly what I had in mind, and perhaps even to the hon. Member for Carlton, and that, after all, is all that I need be called upon to do.
This has happened in a very short period. I need not develop this because we all know it, but sometimes forget it. Year after year, the same thing happens, and Clauses protective of the Revenue are put in because this, that and the other cropped up. We on this side of the Committee have always taken the view, in which I thought for one moment that we had the support of the hon. Member for Carlton, that the Inland Revenue ought to have powers to make their "blood-sucking" more prompt and comprehensive than it is at present, and that there ought to be powers either to introduce legislation specially or to provide by way of Statutory Instrument until the next Budget for dealing with this type of practice.
That has not been met by this Clause. Another method is sought, and that other method, as I understand it, is not to define narrowly and too exactly the particular practices we want to cover, but to define them in terms rather wider than a narrow definition, because that is the only way in which we can catch what it is intended to prevent. [Interruption.] Does the hon. Member for Carlton want to say something?
I listened very carefully to what my hon. Friend said, and I do not see that there is any inconsistency at all. I must be allowed to judge that kind of thing for myself. I am trying to the best of my ability to give the hon. Member for Carlton, among other people, the benefit, and I am sure he will admit that it is a benefit, of my views on this matter, and I now proceed to do so.
I see no point in having a Clause with motive in it if all that we are going to do is to cover by the precise words of the Clause certain precise practices, and the reason we were given by the Chancellor of the Exchequer, whose views on his own Finance Bill, after all, are of some importance, for the introduction of this Clause was that a rather wider Clause was needed in order to provide not only for the diversity of the present practices but for the future exercise of ingenuity by those who practise these high arts of dealing in shares and what not so as to defraud the Revenue.
When we come to defrauding the Revenue and the rest of it, we tend to forget from time to time that every penny that is made out of the Revenue or not paid to the Revenue because of these devices comes out of the pockets of the ordinary run of taxpayers. If we are to be unjust, it is just as unjust to them if we cast our net not far enough as it is to other people to allow them to get out of certain difficulties by saying what their motives were.
I hope I have made myself clear to the Committee, but I am going to repeat it because I think it is necessary that it should be repeated. There is no point whatever in having a Clause which gives a taxpayer the right to get out on the question of motive unless the definition in the Clause is rather wider than it would be but for that lane of escape. After all, that is what happens in this Clause.
I do not believe that this Amendment, read in conjunction with subsection (1), will by its language cover much which will call for the defence of motive. It seems to me that one or two hon. Members, at any rate, were forgetting that a preliminary to the whole thing is the tax advantage, that is, something which, as I understand it, the taxpayer would not get in the normal run of things. That is the beginning of the whole business, and then there have to be these circumstances provided in the Clause, widely drawn, I agree, to meet them, but not, in my view, drawn too widely, and then we get the operation of the matters that cause some hon. Members some uneasiness—what I might call, broadly, the motive part of the Clause.
I wish to say a word or two about motive. What I feel some hon. Members have been forgetting is that it is no doubt true that in a criminal case, or even in courts-martial, motive has to be proved, but proof in these matters is something which may cast a burden on one side at the beginning, and that is a burden which itself might well shift as any case goes on. Therefore, it is not an absolute thing that can be looked at simply as one burden of proof.
Secondly, one has to remember, and I think the Committee has been forgetting it a little, or some hon. Members have, that in these cases it is the man whose tax liability is being considered who knows all the facts. It is not only his motives that he knows, but he also knows the facts, and all that the Inland Revenue is likely to know are such facts as have been communicated by him, possibly supplemented by some small information from somewhere else, but that is not at all necessarily so. It is pushing it too far to make the side which has no information, except what has been given to it by the other side, prove the whole story. The man who knows the facts must at times be called upon to disclose them, and there is, after all provision for this in the ordinary course of the law as well as in Revenue proceedings.
I do not want to talk about the first subsection any more than is necessary for the purpose of this subsection, and I end up in this way. I think that on the form of the Clause, this subsection ought to be and is rather wider than the mischief at which it aims. There must be some scope for protection of the motive. I agree with my hon. Friend, with the hon. Member for Wolverhampton, South-West (Mr. Powell) and others who said that the more precisely we can frame this Clause the better. I agree that we all want that to be done, but let us not try to make this subsection so precise that we avoid the main object of the Clause as a whole, which is to cover by a rather wider definition than is usual in Revenue cases that which cannot always be foreseen and has not been foreseen in the past, and give the taxpayer a way out on proof of motive and innocence of his intentions.
To those observations may I add one thing more? The City is like the curate's egg— bad in parts. We on this side of the Committee do not say that the whole of it is bad. My hon. Friends have never said so, but some of the stories that we get from the Government benches when it comes to considering tax avoidance, and the instances they give us, show a state of mind which commands no sympathy whatever in any part of the Committee. The line between that state of mind and the ordinary business practices of any commercial community is not a sharp line. It is a line which must, in the ordinary course of business, be something blurred, just as, after all, there is no sharp line between saying of someone or another "He is a good citizen" or "He is a bad citizen."
These things are matters of degree, and the pride of a community ought to be that it raises the standard of what is accepted as tolerable behaviour in its commercial activities and in the dealings of its citizens with those who collect taxes for public purposes and for the common good.
I said when discussing the last Amendment that I would do my best to answer any questions about the Amendment and its relation to the rest of the Clause when discussing this Amendment. I should like to do so now quite shortly.
My hon. Friend the Member for Carlton (Sir K. Pickthorn) was, I thought, very wounding in some of his observations—
—when he said that no one explained sub-paragraph (c) to the Committee. When he looks at HANSARD he will find that I devoted at least half my speech to that subsection. I agree with him about the full stop. It is not in the right place.
My hon. Friend said that he thought that the precision method had not been sufficiently tried out. I take a different view on that. I think that this is very precise, very close and skilful drafting by the Parliamentary counsel. That is, perhaps, one of the difficulties that make it less easy to appreciate its full import and full effect. However, I think that it is a piece of drafting which, apart from the punctuation to which my hon. Friend drew attention, is not open to serious criticism. I will come back in a moment when I am dealing with other points to the ambit of sub-paragraph (c) and summarise once more what I said in moving the Amendment.
My hon. Friend the Member for Carlton a very serious question: why was the Revenue always behind the clever chaps and why could it not keep pace with them? If he will reflect for a moment he will see that the reason is as follows. The people who spend their lives devising schemes of this sort create a new device. They then put it into effect. Naturally, the Inland Revenue does not get to hear of that scheme until a claim for repayment or relief comes along, and that is probably a year or more later than the transaction. Throughput that intervening period the clever chaps can go on repeating the operation. Suppose it comes to the notice of the Revenue in, say, July of one year. There is then a further delay till the following Budget, and there is all that period during which the clever chaps have a completely free time to operate the device. That is the answer to my hon. Friend's question on that subject.
My hon. Friend also asked me a question about subsection (1), as to the meaning of "one of the main objects". The history of why that was included in the provision which preceded this one is simply as follows. It started off by just saying "the main object". Then a taxpayer came along and said, "But that was not my main object. I had another main object, which was perfectly legitimate." So he got out of it. Parliament had to amend the law to stop that sort of thing being said and decided to say "one of the main objects". That may not appear to be suitable language, but it has worked to defeat that kind of operation.
My hon. Friend also asked whether this kind of Clause would impose great delay on the carrying out by ordinary people of ordinary transactions. That is a serious question which I want to answer. I think the answer is definitely "No". That is because the only transactions which come within the ambit of the Clause are transactions which fall into two categories. One category is bond washing; and the ordinary person does not deal in bond washing. The other category is that whereby the assets of a company are distributed in such a way that they do not pay tax which they would normally bear, and it is only when one gets that distribution happening that the transactions can come within the scope of the Clause; that is to say, the actual distribution of the assets or profits, and that is fundamental to sub-paragraphs (a), (b) and (c) when dealing with dividend stripping or the assets and profits of a company.
Before I answer my hon. Friend the Member for Bath (Mr. Pitman), I will complete the point that I am at the moment on; but I shall return to the subject in a moment.
That is one of the essential features. That being so, I do not believe that the effect of the Clause will impede the conduct of ordinary and proper transactions.
The hon. Member for Gloucester (Mr. Diamond) raised two points. One concerned the reason why there was only a reference to "assets" in line 11 when there was a reference in line 27 to "liabilities" as well. It is a technical point. I think it is all right as it is, but I will certainly look into the matter. The hon. Member raised another point of a technical character, whether the word "other" was strictly necessary. We can consider that, and, if need be, polish it up on Report.
My hon. Friend the Member for Bath raised a number of questions, some of which I have already dealt with in the course of moving the Amendment. He asked specifically about the sale of shares to the public when a private company becomes a public company and whether that came within the provisions of the Clause.
On a point of order, Mr. Arbuthnot. I am sorry to interrupt the Attorney-General, and I understand his keen desire to answer his hon. Friends and, therefore, his natural tendency to lean and speak towards them, but that means that hon. Members on this side of the Committee are denied the value and wisdom of his words.
I am sorry if I was not addressing the Chair loudly enough.
I was attempting to deal with a point raised by my hon. Friend the Member for Bath which I thought I had dealt with on moving the Amendment. My hon. Friend asked about the sale of shares to the public when a private company becomes a public company and asked whether that came within the provisions of the Clause. I said quite emphatically that it was not within the provisions of the Clause. The reason for that is that there is no associated distribution of profits or assets of the company.
My hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) drew attention to the weight which we are placing on the words "distribution of profits", a term defined in the Clause. I agree that we are placing a great deal of weight upon that phrase. I do not think we are placing too much, because the essential feature of the operation of dividend stripping and stripping the assets of a company is taking assets out of the company, which if taken out normally would bear tax, in such a way that tax is avoided. The issue of bonus shares in itself does not take any assets out of a company, and, therefore, that transaction and many other transactions about which fears have been expressed do not come within miles of the scope of the Clause because they are not linked with a distribution of the profits in such a way as to avoid the normal incidence of tax.
Perhaps my right hon. and learned Friend would allow me to interrupt him at this point, because I do not think he has appreciated the point. In both his explanation and the subsection where the word "realisation "is mentioned as a "distribution" it is implicit—and it is expressed in the subsection—that if a private company has considerable reserves—in other words, if it is big with reserves—and its shareholder makes a sale of his shares, then under the terms of the definition of "distribution" as including realisation and the definition of "tax benefit" the vender is clearly falling, I would say, within the mischief of this subsection as receiving a distribution. It is because of that definition of realisation as being a distribution that I am asking my right hon. and learned Friend very genuinely this question, and I do not want him just to say ex cathedra that my argument is at fault just because he says so, without reason given.
I can only say to the hon. Gentleman that he is not right. The sale of shares is not a distribution of the assets of a company, that is the short answer. It is what I have said several times before and I ask him to consider it. The shares of a company can be transferred from one person to another, but that is not a distribution of the assets.
The hon. Gentleman also asked whether charities should be included. One feature of this matter is the fact that charities, superannuation funds and persons who are exempt from the liability to pay Income Tax can be made use of in these operations. It is to their advantage to buy, and perhaps to pay more than the ordinary market price, because they are exempt from tax. I need not expound it, but it is absolutely essential that they should not be excluded from the scope of this Clause.
My hon. Friend the Member for Wolverhampton, South-West asked if we would consider whether we were relying too much on the words "distribution of profits". I do not think that we are. I think that puts the matter shortly and clearly. My hon. Friend also asked whether the reference to
the receipt of any money or money's worth
was strictly necessary and whether it might not import doubt. Were these words left out, the argument might be presented that where the consideration was money's worth the transaction was not caught. But I am willing to look at that again to see whether any improvement may be made.
My hon. and gallant Friend the Member for the Isle of Ely (Major Legge-Bourke) asked a question which is difficult to answer, whether what he called any correct transactions could come within the scope of subsection (2). I find it hard indeed to visualise any correct transactions which would come within subsection (2) as it is now drawn. As I said in moving the Amendment, if we find that we have, by the use of language, somehow included a correct transaction, we shall see if we can alter the words.
We shall certainly see whether we can amend the wording again. But we do not think that we have. That is why I think there is great force in the observation of the hon. and learned Member for Kettering (Mr. Mitchison), that if we have that part right subsections (1) and (2) would bring in the kind of transactions we want to see stopped.
The question of motive and onus of proof is of lesser importance. That of course can only arise—I say this to my hon. and gallant Friend the Member for the Isle of Ely—questions of motive and onus of proof under subsection (1) can arise only when other conditions under subsections (1) and (2) are satisfied. So I think that there is quite a case for saying that when transactions come within subsections (1) and (2) they are prima facie bad transactions, and it is not very wrong that a pretty substantial onus to show that they are not bad transactions should rest on the person who engaged in them.
I am grateful to the right hon. and learned Gentleman for what he has just said. I earnestly hope that he will not be tempted to narrow the Amendment which we are now discussing, since there is, after all, the motive point, and, if there were not, this would only be one other tax avoidance Clause which might meet with the evasion that has been the fate of so many other Clauses.
I think it right to have the let-out in subsection (1) as an additional safeguard in case we have drawn subsection (2) a little too widely. My hon. and gallant Friend the Member for the Isle of Ely said it was wrong to make people prove that they did not intend to do it. That does not arise in this case. There is no question of people proving their motives unless they have been parties to transactions which come within the scope of subsection (2).
My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) criticised the fact that the Amendment I moved was tabled so late. It is not easy to draft these Amendments or to judge the right time to table them. Between the publication of the Finance Bill and its Committee stage a number of views are submitted, and we wish to take as many as possible into account and to frame Amendments as correctly as possible. If the tabling of such Amendments is left too late in the day there are criticisms because they have been left too late, but if they are tabled earlier there are criticisms because the views of various people have not been taken into account.
My hon. Friend said something about there being a fog in connection with this Clause. I have done my best to dispel that. I rather resent him saying that he felt I was not on top of all the implications of the Clause because I felt with some confidence that I had understood all these implications. He asked particularly about charities. I can only repeat that it is not possible to put charities in a privileged position in this connection. Nor do I think that charities and superannuation funds and other exempt bodies should be so privileged, when one bears in mind, in relation to dividend stripping and the stripping of assets from companies, that it is all machinery whereby the normal incidents of tax can be avoided plus, in certain instances, the opportunity of getting repayment from the Revenue.
Summing up paragraph (c), I would say that it covers the case of a third party, the seller in the dividend stripping or seller of shares. It also covers the case where there is a distribution of profits of a kind which I have mentioned, namely, a return of capital at a high premium paid out of reserves. It is right that it should cover those cases, as well, because if it did not it would leave a very wide loophole. I hope I have addressed the Chair sufficiently long in dealing with all these points. I commend this Amendment to the Committee, and I conclude by saying that if between now and the Report stage we can think of any way to make this Clause more precise, more definite and more clear we shall not hesitate to adopt it.
I should like to apologise for the mist in this Chamber, which I am in the middle of as well, because I did not ask my right hon. and learned Friend to exempt charities; I accept that they cannot be exempted. I asked whether he would consult the Charity Commissioners about the effect of this Clause on the management of charitable funds before Report stage. I consider that a modest request, and I hope that he will be able to do so.
I beg to move, in page 22, line 39, to leave out from "transactions" to "such" in line 41, and to insert:
the tax advantage obtained or obtainable by him in consequence thereof shall be counteracted by
This series of Amendments deals with a matter which appeared to my hon. Friends and myself to be of great importance. I believe that much of the dismay which greeted Clause 26 as it first appeared in the Bill was due to the impression, which may or may not have been well-founded, that it contained a power to tax by direction; that the meaning of subsection (3) was that if a person found himself, was, or appeared to be within the mischief of subsections (1) and (2) it was for the Commissioners of Inland Revenue to decide whether he was a suitable recipient for a decision, so that it was their direction rather than that of the House which made one person and not another liable to have a tax advantage counteracted.
I am inclined to think that that may not be the intention of the subsection, but I am sure it will be agreed that it should not even appear to be the intention, and that there should be no danger of its being so interpreted. What we require is that the Committee should lay down the circumstances in which a gain is taxable, or in which a tax advantage is to be counteracted, and that the function of the Inland Revenue should be merely executive, and be seen to be merely executive, namely, the function of putting in motion the machinery for counteracting the advantage.
Accordingly, these Amendments would turn the subsection into a clear taxing provision. That may be clear if I read the subsection as it would appear if the Amendments were made. It would read:
Where this section applies to a person in respect of any transaction or transactions the tax advantage obtained or obtainable by him in consequence thereof shall be counteracted"—
That is a clear declaration of a charge, and it is to be counteracted by
such of the following adjustments"—
and then the adjustments are set out as in the Clause at present—
as the Commissioners of Inland Revenue may specify by notice in writing served on him…
That is the executive act of the Commissioners. They are not free to use their discretion. They can specify only
such adjustments as are requisite for counteracting the tax advantage so obtained or obtainable.
I submit that if we amend the Clause in this way we shall remove any impression in the minds of the public that this is a Clause which taxes by direction, and make it quite clear that it is a charging provision, and that the Commissioners have no choice under it but to do their duty.
When I read the comments in the Press on this Clause it appeared that there had been a great misapprehension about it, in the belief that it somehow conferred wide executive powers on the Commissioners of Inland Revenue to interfere with transactions whenever they felt disposed. That is not the effect of subsection (3) as it stands. The power of the Commissioners under the Clause is merely to give directions, when the circumstances are satisfied, saying that the tax advantage must be nullified. They are directions as to the manner in which the tax advantage should be nullified, and that is all. It is purely machinery for nullifying a tax advantage.
At the same time, there is no doubt that the use of the word "directions" was unfortunate. My right hon. Friend's Amendments make it clear that no such executive power is being given to the Commissioners of Inland Revenue. We have carefully considered the matter and, although the wording of the Amendments is not precisely apt in one or two respects, from a technical point of view, and there may have to be a slight tidying up by way of consequential Amendments on Report, we are prepared to accept the Amendment moved and the other Amendments related to it.
Is the Solicitor-General satisfied that when these Amendments are made the Clause will still contain an instrument of action? The word "directions" may have been unfortunate, but at least it specified who was going to do something. Is it clear that somebody will do something if that reference is omitted? Will the acceptance of this Amendment, in particular, insert in the Clause the means of action? I am not sure who makes an assessment, or an additional assessment, or what happens. If it is just going to be made, it is not easy to see where the power of action lies.
The Clause remains operative with the Amendments. Any defect is purely a technical one. The Committee will not be passing an in-operative Clause. The hon. Member has laid his finger on the Amendment which carries the motive force of the Clause. It inserts the words:
The Commissioners of Inland Revenue may specify by notice in writing served on him as being&
I am surprised that the Attorney-General was so willing to accept all the Amendments, and especially this one. He said that this would not alter the meaning or the effect of the Clause, but would merely remove a possible misunderstanding in the minds of the public. The essence of the matter is the word "directions". Section 245 of the principal Act provides that the Commissioners may direct in regard to Surtax, and I would have thought the Government would say that the word used there is well understood, that there is a body of law and a precedent which works quite satisfactorily, and that since this subsection was comparable with that Section we should be guided by the principal Act and retain the word "directions". I wonder whether the Government have given sufficient consideration to this, and whether they are satisfied that the omis-
|5||(4) The Commissioners of Inland Revenue shall not give notice under the foregoing subsection until they have notified the person in question that they have reason to believe that this section may apply to him in respect of a transaction or transactions specified in the notification; and if within thirty days of the issue of the notification the said person, being of opinion that this section does; not apply to him as aforesaid, makes a statutory declaration to that effect stating the facts and circumstances upon which his opinion is based, and sends it to the Commissioners, then subject to the next following subsection this section shall not apply to him in respect of the transaction or transactions.|
|10||(5) If, when a statutory declaration has been sent to the Commissioners under the 10 foregoing subsection, they see reason to take further action in the matter—|
|(a) the Commissioners shall send to the tribunal a certificate to that effect, together with the statutory declaration, and may also send therewith a counter-statement with reference to the matter;|
|15||(b) the tribunal shall take into consideration the declaration and the certificate, and the counter-statement, if any, and shall determine whether there is or is not a prima facie case for proceeding in the matter, and if they determine that there is no such case this section shall not apply to the person in question in respect of the transaction or transactions:|
|20||Provided that such a determination shall not affect the operation of this section in respect of transactions which include that transaction or some or all of those transactions and also include another transaction or other transactions.|
This Amendment creates a procedure which will enable a person whom the Commissioners of Inland Revenue think to be within the Clause to have his case considered by the new Tribunal before the Inland Revenue takes any action. The Amendment requires the Commissioners to give a preliminary notice that they have reason to believe that the Clause may apply to a person in respect of a specified transaction or transactions. He then has thirty days in which to make a statutory declaration to the effect that, in his opinion—
An Amendment is put down to a Clause as unamended at the time, and any discrepancy that arises can either be put right by manuscript Amendment or, far preferably, on Report stage. One quite frequently gets slight discrepancies of this sort as a result of accepting a previous Amendment. It is purely a matter of drafting and can be put right on Report.
On a point of order, Sir William. I understood completely what you said, but you have now heard what the Solicitor-General has had to say, and I return to my question as to whether this Amendment should not be deemed to have fallen as a result of accepting the previous Amendments. It is difficult to follow this as it goes on and a number of Amendments are accepted. One of the advantages of the rule which, I am suggesting, might apply to this case would be that we would know what we were doing. If the Amendment were to fall as a consequence of the acceptance of the previous Amendments, and were put down later, that course would be to the advantage of the Committee.
Further to that point of order, Sir William. Contrary to what the Solicitor-General contends, this is not a mere discrepancy which we are considering, but a fundamental question. A point of substance is involved. He indicated that this was merely a drafting matter and something which could be corrected at a later stage.
I support the contention of my hon. Friend the Member for Gloucester (Mr. Diamond) that this is a point of order. I have always understood that if, in consequence of some Amendment that has been carried in the Committee, a subsequent Amendment which depends upon a change in the Bill is on the Notice Paper, then that subsequent Amendment automatically falls, because there is nothing left in the Bill to which it can relate. As my hon. Friend has pointed out, this Amendment depends entirely upon the Commissioners being able to give directions, and qualifies the procedures in that event. That part of the Clause has now been eliminated. I suggest that the right procedure is not to deal with this Amendment now but to proceed to the following Amendment selected. If the Solicitor-General thinks that some discrepancy has arisen, no doubt he will deal with it on Report stage, hut he should not be allowed to depart from the strict rules of order.
Further to that point of order. All that is necessary is to substitute the words "a notice" for the word "directions" in the second paragraph. There might be one or two other words which on a strict view require tidying up but this is really only drafting. The House is perfectly capable of putting two inconsistent subsections in a Bill in Committee and clearing up the matter on Report stage. That is one of the uses of a Report stage. There is no reason at all why this new subsection, which is for the advantage of the taxpayer and the subject, should be held to fail on a merest technicality which cannot affect the merits of the matter at all.
If necessary, I should ask to amend, by a manuscript Amendment, the word "directions" into the words "a notice", but I have the feeling that one always gets into a mess by a manuscript Amendment and I should have thought it better to proceed on the realities of the situation.
I have the feeling that one always gets into a mess if the Government do not think beforehand of what will be the consequence of accepting a list of Amendments. The Government must have known they were going to accept these Amendments. If they were going to ask leave to bring in manuscript Amendments, why did they not have them ready? Surely for some time past there has been plenty of opportunity to do that. I do not think my hon. Friends would have felt so badly about this if manuscript Amendments had been put forward at this point.
It is not the practice of the Committee for the same person, even if he is a member of the Government, first to accept an Amendment which will make nonsense of his own Amendment, and then to claim to proceed with his second Amendment because otherwise there would be such a mess. There is indeed a mess and the hon. and learned Gentleman has made it. It is not altogether irrelevant to point out that on this Clause we have the unusual phenomenon of two starred Amendments in the name of the Chancellor of the Exchequer appearing on the third day in Committee on the Finance Bill.
The hon. and learned Member for Kettering (Mr. Mitchison) is constitutionally under a misapprehension. It was not the Government, but the Committee, which accepted these Amendments. Until the Committee accept an Amendment, what is operative before the Committee is the Bill as printed. Therefore, the only Amendment which could be put on the Notice Paper would be one containing the word "directions" and not "notice".
That last argument, if I may say so with respect, is pedantic nonsense. We all know perfectly well what is meant by saying that the Government accept an Amendment and we are well aware that if they accept an Amendment the consequence is that the House, or the Committee, as the case may be, accepts it. That is what the Whips are for.
Will the hon. Member please allow me to give a Ruling, for I have heard so many points of order that I am in danger of forgetting them. I understand that an hon. Member cannot move an Amendment if it is inconsistent with a previous Amendment that has been agreed to by the Commit-teen. It says on page 554 of Erkine May:
An amendment must not be inconsistent with, or contrary to, the bill as so far agreed to by the committee nor must it be inconsistent with a decision of the committee upon a former amendment
So, if in fact the Amendment which has been proposed would be inconsistent, I could not allow it to be discussed.
Sir William, naturally I accept your Ruling without hesitation. I merely point out that there is no inconsistency. [HON. MEMBERS: "Oh"] I hope that the Committee will hear me. All that this says is that
The Commissioners of Inland Revenue shall not give directions under the foregoing subsection…
It is quite irrelevant whether they had the power or not to give directions under the foregoing subsection. There is no inconsistency. It is not, I admit, the way in which one would normally draft, but there is absolutely no inconsistency. If, for example, it said that the hon. and learned Gentleman shall be deemed for all purposes to be a Member of another place—
I think that we should get this clear. I understand that the hon. and learned Member argues that there is no inconsistency, and that being so, it is open to the Committee to discuss the Amendment.
On a point of order. Will you, Sir William, hear an argument on the question whether there is inconsistency? You will notice that the first of the Amendments that has been accepted by the Committee is to leave out from "transactions" to "such" in line 41, and the words left out were:
…the Commissioners of Inland Revenue may by notice in writing to him give directions specifying the transaction or transactions and providing for…
The next Amendment left out any reference to "directions". The decision of the Committee was on the question whether those words should stand part of the Clause. In the result, what the Committee decided was that the only reference to "directions" in that subsection should no longer stand part of the Bill. Having so decided, what it is now sought to do is to bring in a reference to other directions which were no doubt previously mentioned in the Bill, and which the Committee has deliberately caused to be omitted. In those circumstances, I submit, without hesitation, that the present Amendment is inconsistent with the two previous decisions of the Committee.
Further to that point of order, Sir William. Did not the Committee accept these Amendments on the understanding of my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) that his Amendment would not alter the meaning of the Clause but was merely for the purpose of clarification? If that is so, there can be no inconsistency.
Further to that point of order. The hon. Member for Truro (Mr. G. Wilson) raised the question of the intention the Committee had in mind when it accepted the previous Amendments. When I consented to the acceptance of the previous series of Amendments which you, Sir William, put from the Chair, I was under the impression that one obvious consequence of the Committee accepting those Amendments would be that this Amendment in page 23, line 3, would fall. I assume that that was in the minds of all my hon. and right hon. Friends, and I have no doubt that it was also contemplated by hon. Members opposite, that the normal rules of the Committee would apply, and we had a relatively short debate on a complicated set of Amendments moved by hon. Members opposite and accepted by us.
Surely, Sir William, it must be assumed that the Committee, in coming to that decision, assumed that the natural consequences of the rules of order would apply. I think that we should have sought to have debated those Amendments at much greater length if we had thought that it would be said afterwards that they did not mean what they said. We accepted them because we naturally thought that that was the meaning of the Amendment in page 23, line 3, to which my hon. and learned Friend has an Amendment. In these circumstances, it would not be fair to the Committee, having accepted the Amendments proposed on the other side, if it now finds that the natural consequences of that decision can be defeated.
May I add one word, if necessary by leave of the Committee? I suggested to the hon. and learned Member that if a manuscript Amendment were put in it might put the matter right. The result may not be perfect but it will at any rate not be inconsistent with the previous decision of the Committee. While it is entirely a matter for your discretion, Sir William, to allow that to be done, my hon. Friends and I would take no objection.
Before we reach a final conclusion on the point of order which I raised a few moments ago, Sir William, may I say how grateful we are to you for listening to the various points of view put forward before reaching a decision. I doubt very much whether the suggestion of my hon. and learned Friend the Member for Kettering (Mr. Mitchison) would be entirely satisfactory, having regard to the fact that sub- section (4) will also have to fall because it refers to directions which are no longer in the Clause. We have been discussing a reference to the one question of directions, and having removed that, I think that the position is fairly plain.
When I interrupted the Solicitor-General he was arguing whether it was consistent. Upon that point hinges the question whether it is in order. I think that I should hear the Solicitor-General complete his argument before giving a Ruling.
My argument was that there is no inconsistency, but if I am wrong about that, Sir William, I ask you, with great respect, and acknowledging gratefully the help of the hon. and learned Member for Kettering (Mr. Mitchison), to accept a manuscript Amendment to the Amendment in page 23, line 3, which is consequential on accepting the previous Amendment.
My argument, which can be put shortly, is that there is no inconsistency in saying in a previous Clause that the Commissioners of Inland Revenue shall give a notice and then going on to say,
The Commissioners of Inland Revenue shall not give directions under the foregoing subsection…
I confess that it is not the way in which one would choose to draft if one were proceeding on a standard of perfection or, indeed, on the normal standards which animate the Committee, but since this is a technical point taken against me, I must point out that technically and logically there is no inconsistency between the two statements.
If that argument does not appeal to you, Sir William, I seek leave to put in a manuscript Amendment to make the first four lines of the Clause read as follows:
The Commissioners of Inland Revenue shall not give a notice under the foregoing subsection until they have notified the person in question that they have reason to believe that this section may apply to him in respect of a transaction or transactions specified in the notification.
The Committee will see that that in no way changes the sense of the Amendment in page 23, line 3. I submit, with great respect, in answer to a pure technicality, that strictly speaking there is no inconsistency between the two subsections.
If the Committee will agree, it will be within the rules of order for me to accept the Amendment in an altered form. I will read out the differences between it and the Amendment on the Order Paper. It begins:
(4) The Commissioners of Inland Revenue shall not give
and the next word on the Order Paper is "directions", and the manuscript Amendment substitutes "a notice". The Amendment continues:
under the foregoing subsection until they have given notice to&
The manuscript Amendment replaces the words "given notice to" by "notified". The Amendment on the Order Paper continues:
to the person in question that they have reason to believe that this section may apply to him in respect of a transaction or transactions specified in the notice;".
The manuscript Amendment replaces the word "notice" by the word "notification". The Amendment on the Order Paper continues:
and if within thirty days of the issue of the notice…".
The manuscript Amendment substitutes for the words "the notice" the word "notification". It seems to me that these Amendments are sufficiently trivial to be legitimately moved in a manuscript Amendment, and they make it possible to continue consideration of this Clause.*
I am very grateful to you, Sir William, for accepting that manuscript Amendment, and I am most grateful to the hon. and learned Member for Kettering (Mr. Mitchison) for his co-operation in the matter so that the Committee can proceed to discuss the merits of this Amendment.
As I said, what the Amendment seeks to do is to introduce a procedure to enable the person, whom the Commissioners of Inland Revenue think to be within the Clause, to have his case considered by the new tribunal before the Revenue takes any formal action. The new subsection (4) introduced by the Amendment requires the Commissioners of Inland Revenue to give a preliminary notice that they have reason to believe that the Clause may apply to a person in respect of a specified transaction or transactions.
The taxpayer then has thirty days in which to make a statutory declaration to the effect that in his opinion the Clause does not apply, and to cite the facts and circumstances on which his opinion is based. He has, again within the same period, to send that declaration to the Commissioners of Inland Revenue. If the Commissioners still consider that action should be taken they must send a certificate to that effect, together with the statutory declaration of the taxpayer, to the tribunal, and they may also send a counter-statement on the matter.
Whether or not further action shall then be taken depends on whether the tribunal decides that there is a prima facie case, for proceeding. If it decides that there is not a prima facie case, the person concerned is freed from action under the Clause in respect of the transaction or transactions in question, taken by themselves—and I emphasise the words, "taken by themselves".
That procedure, as certainly the hon. Member for Sowerby (Mr. Houghton) will recollect, corresponds closely to the provisions of Section 251 of the Income Tax Act relating to directions on the income of a one-man company which is deemed to be the income of the members, and it has worked very reasonably in respect of that class. I think that it is fair to say that the Amendment has attracted favourable comment, and has been generally welcomed, because it has been felt that the exercise of the power conferred by the Clause can, if the person concerned wishes, be governed by the decision of the new tribunal from the outset.
This is therefore one of the series of Amendments we have tabled to make it quite clear that there is not an executive discretion in this respect. The procedure leaves quite untouched the appeal to the Special Commissioners and the tribunal on the full facts after the Revenue has taken action, but it is an additional safeguard to the bona fide taxpayer.
This Amendment is of some importance. I thought that the hon. and learned Gentleman the Solicitor-General, by saying that it left open a final proceeding, was quite unintentionally misrepresenting it to the Committee. As I understand it—no doubt, he will tell me if I am wrong— if there is a final decision that there is no prima facie case, the whole provision ceases to apply to that person in respect of that transaction, subject, of course, to the proviso in connection with other transactions. Therefore, the decision that there is no prima facie case will stop the whole proceedings, just as it does—
If I may interrupt the hon. and learned Gentleman, he is quite right, although what I actually said was that the new procedure leaves untouched the appeal to the Special Commissioners and the tribunal. The appeal to the Special Commissioners is the taxpayer's appeal.
I hope that the hon. and learned Gentleman and I will not have a verbal argument. It does not leave it untouched because in certain circumstances the right of appeal may disappear completely. There may be no decision. The whole subsection would cease.
I wish to deal with the matter on broader grounds than that. This provision was not contemplated by the Chancellor or by any other member of the Government, so far as I know from any speech which the right hon. Gentleman has made in connection with the Bill, and it has been introduced, as we suspect, as a concession to Government back benchers. We regard it as unnecessary and rather poisonous, and I will say why.
It is perfectly true that in an entirely different matter—on the question of directions to companies in connection with Surtax—there have been broadly similar provisions which now form part of the Income Tax Act. In that case the appeal, if I may so call it, on whether there is a prima facie case or not is raised after the Surtax directions are given or after there has been a formal request for certain particulars in connection with the Surtax procedure.
Broadly speaking, it is true to say that it is a provision which applies to a quite different matter, and I think a rather simpler matter—that is to say, the Surtax directions—and the Committee is well aware that that means directions to put upon individuals an individual liability to Surtax in respect of the profits of what I may call the controlled company. That is quite different, and I suggest it is rather simpler. It takes place certainly at a different stage, and while I recognise that that has worked satisfactorily, so far as I know, I think there is little or no indication whether this provision will or will not work.
My main objection to it is the extreme complication which is now to be introduced into this procedure. If we make it complicated enough, no doubt the Revenue will be even more reluctant to move, if it ought to move, than it otherwise might be. That is the risk that has got to be considered.
Suppose someone desires to take every conceivable point and uses every conceivable means of appeal. What can happen under the proposed subsection? What were originally directions—now it is to be a notice—are given to that person. He thereupon submits to someone that that provision does not apply to him. He sends a statutory declaration in support of that contention to the Commissioners. Without dealing with the procedure, let us assume that the Commissioners turn him down and say there is a prima facie case. He has had one hearing or consideration. He then goes back, and steps are taken to adjust his tax liabilities. He then proceeds to exercise all his rights of appeal.
I hope that I am not mistaken in this, but it seems to me that he can then go to the Special Commissioners and to the tribunal. If I am wrong, perhaps the hon. and learned Gentleman will tell me. There is, of course, a statutory right before the Special Commissioners for him to declare that he is aggrieved and to ask for a case to go to the High Court. He can take that case right through the various stages of the High Court. That is singularly elaborate machinery.
I turn now to the next point. What will happen when this case goes to the Commissioners? What the taxpayer has to furnish is a statutory declaration stating
the facts and circumstances upon which his opinion is based",
his opinion being that the Clause does not apply to him. It is true that it is a stautory declaration and he makes any misstatements at his peril under the Perjury Act, but there is nothing whatever to induce him, and no suggestion that he
should do it, to put in anything more than his own side of the case. That is really what is asked for. This is then to be sent to the Commissioners. The Commissioners may, if they wish, send to the tribunal a certificate stating that they desire to proceed. They may or they may not accompany that with a counter-statement.
I ask the Committee to consider the matter from the point of view of the Revenue at that stage. The Revenue then has whatever it has been able to discover or suspect from fairly incomplete statements which, no doubt, will have been made to its officers in the ordinary course of their affairs, and it will have had no special power at that stage, as I understand it, to get any more out of the taxpayer. The Revenue will have had before it the taxpayer's statement of his own case. On that very insufficient material, it is called upon either to content itself with a certificate or, at any rate, to disclose, as it were, its own case.
Let us assume for the sake of argument that the matter goes to the tribunal. I shall have some more to say about that. It may reach the tribunal with or without the counter-statement of the Commissioners, but in no case will the tribunal have any more information before it than what the Commissioners may have incorporated in their counter-statement, plus the taxpayer's own statement of his case.
I suggest that this type of information may be enough for saying that the taxpayer has no case, but it is really not good enough to say at that stage that the Revenue has no case. The Revenue has had no opportunity of really discovering what the facts are. Indeed, when one turns to the main text of the Bill and the provisions for obtaining proper information, one finds that what the taxpayer has to provide at that stage is not merely this incomplete thing,
the facts and circumstances upon which his information is based",
but a full and complete statement of what has happened, full and detailed particulars and information. The difference between the two is very marked indeed.
Next, is this really required for the taxpayer's protection? If it were, we should not, I think, necessarily grudge it. But one should remember that the taxpayer is a person who, so the Commissioners or, if one likes, the inspector, think, rightly or wrongly, is carrying on the practices against which the Clause is directed. It can be assumed that the matters are fairly complicated, at any rate, and the more unsuitable for this procedure.
In countless other cases under the Income Tax Acts there are appeals to the Special Commissioners. They are standard form. From the Special Commissioners there are appeals by way of case stated to the High Court, as of right, where either the General Commissioners or the Special Commissioners have determined an appeal. I exclude the General Commissioners for the moment from this machinery because I think that it is the Special Commissioners with whom we are principally concerned. Therefore, in other tax cases a taxpayer who may feel that he has been hard done by has a right to go to the Special Commissioners on questions of fact and law and from there, on case stated, to the High Court. It is true that on a case stated the court is bound to accept the findings of fact of the Special Commissioners, the hearing before the Special Commissioners having been a complete rehearing both on fact and law.
When one considers the type of case with which the Clause is intended to deal, it seems to me, except on one point, that the papers in the case will determine the matter. If the case is stated fully and adequately the conclusion drawn by the Special Commissioners will be open, in practice, to fairly complete review on the case stated. The only question on which that is not the position is that of motive—whether or not it was the main object or one of the main objects. It will not occur in a great many cases, as the Attorney-General said on a previous Amendment, but where it does occur what will be the position? We shall have two entirely separate tribunals deciding one after the other on the same question of fact. It is true that this happens in criminal cases and appeals to quarter sessions, and so on, but it seems to me that this is a very different type of decision.
I think that it is no safeguard to the subject—on the contrary, it is rather a hindrance to him—that there should be two possible decisions of that kind. In short, from the point of view of the tribunal, it seems to me to be a superfluity.
There are two Amendments on the Notice Paper to substitute the words "Special Commissioners" for the word "tribunal". Would it be convenient to the Committee and should I be in order if I moved those Amendments, Sir William? I hope that by so doing I shall not curtail discussion on the main Amendment.
I beg to move, as an Amendment to the proposed Amendment, in line 11, to leave out "tribunal" and to insert "Special Commissioners".
If there is to be a right to stop the whole proceedings on the ground that there is not a prima facie case and on the rather insufficient evidence that I have suggested, I see no reason why the matter should rest with the tribunal rather than with the Special Commissioners. The hon. and learned Gentleman the Solicitor-General seems to take a very critical view of the Special Commissioners. So far as I have had experience of them in professional work and otherwise, I should have thought that they constituted an excellent tribunal, particularly for this purpose, not in the least prejudiced in favour of the Revenue or anything like that.
I cannot understand for what the tribunal is required. It is a new body. It corresponds more nearly perhaps to the board of referees than to any other body in the Income Tax Acts. Apparently the distinction between this body and the board of referees is that the experience of the members of the tribunal, at any rate other than the chairman, is to be in financial rather than trading matters. I do not know how this body will work. Is there any real need for it? What reason is there for putting this tribunal side by side with the Special Commissioners, as far as I can see with a right of appeal to both of them, one after another? If I am wrong about this, I wish that the Solicitor-General would assist me not to mislead the Committee and tell me that I am wrong. That, however, is how I read the Clause.
In those circumstances, the tribunal seems to me to be wholly unnecessary and to add to the complications already inherent in the Clause. That, too, was not mentioned by the Chancellor of the Exchequer. He specifically mentioned the appeal to the Special Commissioners and the appeal on a case stated and on a question of law to the High Court. He made no mention, in his Budget speech or later, of the tribunal.
I see no reason for the tribunal. I regard it as another concession to the Tory back benches and one which will not give the taxpayer any protection but which will take up a lot of time, may well involve him in a lot of wasted expense rather than give him protection and may seriously prejudice the proper administration of the revenue laws by the Inland Revenue authorities. I hope, therefore, that after hearing further argument about it the Committee will reject the Chancellor's Amendment or, if it does not reject his Amendment as a whole, will at least allow the Amendment which I propose.
I ought to mention one further short point. Clearly, if there is to be a reference to the Special Commissioners or to the tribunal, there should be a power to state a case. At present, there is no power. If we were to have an appeal on law, the question of whether there was or was not a prima facie case, which might determine the whole issue of the proceedings, is a proper legal question to be taken to the High Court if need be. So that if the Clause is to be had at all, I should like to see a power—that is the effect of the third of the Amendments on the Order Paper—to have a case stated by the tribunal or, in my view, by the Special Commissioners.
If that would be for the convenience of the Committee, yes. If the Committee does not so like, the hon. and learned Member's Amendment, which he has just moved, must be disposed of. Then, we will debate the remainder of the Clause. I took it that it would be convenient to have the one debate but two votes, if necessary, one on the hon. and learned Member's Amendment and one on the Government's Amendment afterwards.
On a point of order, Sir William. Would it not be more convenient if, now that my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has moved his Amendment, we were to confine the debate to that Amendment? Some of us may well wish to speak on that Amendment. Until we know how it is disposed of, we should be in considerable difficulty in addressing ourselves to the Solicitor-General's Amendment. My hon. and learned Friend's Amendment raises a totally different point. Hon. Members are taking a great interest in the Clause and in this decision. In the interest of general order, it would be better if we could bring this narrow point to a conclusion at an early stage. This would be acceptable to a number of my hon. Friends.
I thought that I was meeting the general convenience of the Committee. If it appears that that was not so, we will take the strict and narrow line and the present discussion will be limited to the Amendment to the proposed Amendment which has been moved by the hon. and learned Member for Kettering (Mr. Mitchison).
Since this is a very narrow issue, perhaps it would be convenient if I intervened now to deal with the question, assuming that there is to be an appeal to dispose of the matter of a prima facie case, whether it should go to the tribunal or the Special Commissioners. I shall leave to the rest of the debate, assuming it goes
I can deal with the Amendment under discussion quite shortly. The hon. and learned Member for Kettering (Mr. Mitchison) proposes to make the Special Commissioners and not the tribunal the arbiters on the question of whether there is a prima facie case. As I pointed out, the proposed procedure is closely modelled on the provision of Section 251 of the Income Tax Act. There the decision goes to the comparable body to that in this case, namely, to the Board of Referees. I think that I am right in saying that that provision has stood since 1927 to universal satisfaction. I have never heard any criticism of it.
In addition to that, the Board of Referees—the tribunal here—is chosen as the arbiters on this question precisely because its members are businessmen, and that applies to the new tribunal, which will include members appointed by the Lord Chancellor as having special knowledge of and experience in financial and commercial matters. I should have thought that that was the appropriate tribunal to decide whether there was a prima facie case for proceeding under Clause 26.
In saying that, I do not accept, in the words of the hon. and learned Member, that I am taking a very critical view of the Special Commissioners. I entirely agree that they perform their work in this matter to the satisfaction of the taxpayer and of the Revenue. They are a thoroughly satisfactory tribunal, but for this purpose the tribunal is a far preferable forum, just as under Section 251 the Board of Referees is the preferable forum for the reasons I have stated.
|Division No. 91.]||AYES||[9.19 p.m.|
|Agnew, Sir Peter||Barter, John||Biggs-Davison, John|
|Aitken, W. T.||Batsford, Brian||Bingham, R. M.|
|Amory, Rt. Hn. D. Heathcoat (Tiv'tn)||Baxter, Sir Beverley (Southgate)||Bishop, F. P.|
|Ashton, Sir Hubert||Beamish, Col. Tufton||Black, Sir Cyril|
|Atkins, Humphrey||Bell, Philip (Bolton, E.)||Bossom, Clive|
|Balniel, Lord||Bell, Ronald (S. Bucks.)||Bourne-Arton, A.|
|Barber, Anthony||Bennett, Dr. Reginald (Got & Fhm)||Box, Donald|
|Barlow, Sir John||Bidgood, John c.||Boyle, Sir Edward|
|Brewis, John||Hollingworth, John||Peyton, John|
|Browne, Percy (Torrington)||Hopkins, Alan||Pickthorn, Sir Kenneth|
|Bullard Denys||Howard, Gerald (Cambridgeshire)||Pike, Miss Mervyn|
|Burden, F. A.||Howard, Hon. G. R. (St. Ives)||Pilkington, Capt. Richard|
|Butler, Rt. Hn. R. A. (Saffron Walden)||Hughes-Young, Michael||Pitman, I. J.|
|Campbell, Gordon (Moray & Nairn)||Hutchison, Michael Clark||Pott, Percivall|
|Carr, Compton (Barons Court)||Iremonger, T. L.||Powell, J. Enoch|
|Carr, Robert (Mitcham)||Irvine, Bryant Godman (Rye)||Price, H. A. (Lewisham, W.)|
|Chataway, Christopher||Jackson, John||Prior, J. M. L.|
|Chichester-Clark, R,||James, David||Proudfoot, Wilfred|
|Clark, William (Nottingham, S.)||Jenkins, Robert (Dulwich)||Ramsden, James|
|Clarke, Brig. Terence (Portsmth, W.)||Johnson, Dr. Donald (Carlisle)||Redmayne, Rt. Hon. Martin|
|Cleaver, Leonard||Jones, Rt. Hn. Aubrey (Hall Green)||Rees-Davies, W. R.|
|Cole, Norman||Kerans, Cdr. J. S.||Ridley, Hon. Nicholas|
|Collard, Richard||Kerr, Sir Hamilton||Ridsdale, Julian|
|Cooke, Robert||Kirk, Peter||Roberts, Sir Peter (Heeley)|
|Cordeaux, Lt-Col. J. K,||Kitson, Timothy||Robinson, Sir Roland (Blackpool, S.)|
|Corfield, F. V.||Langford-Holt, J.||Roots, William|
|Costain, A. P.||Leavey, J. A.||Ropner, Col. Sir Leonard|
|Coulson, J. M.||Leburn, Gilmour||Scott-Hopkins, James|
|Courtney, Cdr. Anthony||Legge-Bourke, Maj. H.||Seymour, Leslie|
|Craddock, Beresford (Spelthorne)||Legh, Hon. Peter (Petersfield)||Sharples, Richard|
|Crosthwaite-Eyre, Col. O. E.||Lewis, Kenneth (Rutland)||Shaw, M.|
|Crowder, F. P.||Lilley, F. J. P.||Simon, Sir Jocelyn|
|Cunningham, Knox||Lindsay, Martin||smith, Dudley (Br'ntf'rd & Chiswick)|
|Curran, Charles||Linstead, Sir Hugh||Smithers, Peter|
|Dalkeith, Earl of||Litchfield, Capt. John||Spearman, Sir Alexander|
|d'Avigdor-Goldsmid, Sir Henry||Lloyd, Rt. Hon. Selwyn (Wirral)||Stevens, Geoffrey|
|Deedes, W. F.||Loveys, Walter H.||Stodart, J. A.|
|de Ferranti, Basll||Lucas-Tooth, Sir Hugh||Stoddart-Scott, Col. Sir Malcolm|
|Drayson, G. B.||MacArthur, Ian||Storey, Sir Samuel|
|Elliott, R. W.||McLaren, Martin||Summers, Sir Spencer (Aytesbury)|
|Emery, Peter||Maclean, SlrFitzroy (Bute&N.Ayrs.)||Sumner, Donald (Orpington)|
|Emmett, Hon. Mrs. Evelyn||Macleod, Rt. Hn. Iain (Enfield, W.)||Temple, John M.|
|Farey-Jones, F. W.||MacLeod, John (Ross & Cromarty)||Thatcher, Mrs. Margaret|
|Fell, Anthony||McMaster, Stanley R.||Thomas, Leslie (Canterbury)|
|Finlay, Graeme||Macpherson, Niall (Dumfries)||Thompson, Kenneth (Walton)|
|Fisher, Nigel||Maddan, Martin||Thompson, Richard (Croydon, S.)|
|Fletcher-Cooke, Charles||Maginnis, John E.||Thorneycroft, Rt. Hon. Peter|
|Fraser, Ian (Plymouth, Sutton)||Maitland, Cdr. J. W.||Thornton-Kemsley, Sir Colin|
|Freeth, Denzil||Manningham-Builer, Rt. Hn. Sir R.||Thorpe, Jeremy|
|Gammans, Lady||Markham, Major Sir Frank||Tiley, Arthur (Bradford, W.)|
|Gardner, Edward||Marlowe, Anthony||Tilney, John (Wavertree)|
|Gibson-Watt, David||Marshall, Douglas||Turner, Colin|
|Glover, Sir Douglas||Marten, Neil||Turton, Rt. Hon. R. H.|
|Glyn, Dr. Alan (Clapham)||Matthews, Gordon (Meriden)||van Straubenzee, W. R.|
|Goodhart, Philip||Mawby, Ray||Vosper, Rt. Hon. Dennis|
|Goodhew, Victor||Maydon, Lt.-Cmdr. S. L. C.||Wade, Donald|
|Gower, Raymond||Molson, Rt. Hon. Hugh||Wakefield, Edward (Derbyshire, W.)|
|Grant-Ferris, Wg Cdr. R. (Nantwich)||Montgomery, Fergus||Wall, Patrick|
|Green, Alan||Morrison, John||Ward, Dame Irene (Tynemouth)|
|Watkinson, Rt, Hon. Harold|
|Gresham Cooke, R.||Mott-Radclyffe, Sir Charles||Watts, James|
|Grimond, J||Nabarro, Gerald||Webster, David|
|Grimston, Sir Robert||Neave, Airey||Wells, John (Maidstone)|
|Grosvenor, Lt.-Col. R. G.||Nicholson, Sir Godfrey||Whitelaw, William|
|Hall, John (Wycombe)||Noble, Michael||Wills, Sir Gerald (Bridgwater)|
|Hamilton, Michael (Wellingborough)||Nugent, Sir Richard||Wilson, Geoffrey (Truro)|
|Harris, Frederic (Croydon, N.W.)||Oakshott, Sir Hendrie||Wise, A. R.|
|Harrison, Col. J. H. (Eye)||Osborn, John (Hallam)||Wolrige-Cordon, Patrick|
|Harvey, John (Walthamstow, E.)||Osborne, Cyril (Louth)||Wood, Rt. Hon. Richard|
|Hay, John||Page, A. J. (Harrow, West)||Woodhouse, C. M.|
|Heald, Rt. Hon. Sir Lionel||Page, Graham||Worsley, Marcus|
|Henderson, John (Cathcart)||Pannell, Norman (Kirkdale)||Yates, William (The Wrekin)|
|Hendry, Forbes||Partridge, E.|
|Hill, Mrs. Eveline (Wythenshawe)||Pearson, Frank (Clitheroe)||TELLERS FOR THE AYES:|
|Hobson, John||Peel, John||Mr. Brooman-White and|
|Hocking, Philip N.||Percival, Ian||Mr. J. E. B. Hill.|
|Ainsley, William||Castle, Mrs. Barbara||Ede, Rt. Hon. Chuter|
|Allaun, Frank (Salford, E.)||Cliffe, Michael||Edelman, Maurice|
|Allen, Scholefield (Crewe)||Craddock, George (Bradford, S.)||Edwards, Rt. Hn. Ness (Caerphilly)|
|Awbery, Stan||Cronin, John||Evans, Albert|
|Bacon, Miss Alice||Crosland, Anthony||Fernyhough, E.|
|Baxter, William (Stirlingshire, W.)||Crossman, R. H. S.||Fletcher, Eric|
|Benson, Sir George||Cullen, Mrs. Alice||Forman, J. C.|
|Blackburn, F.||Davies, Harold (Leek)||Fraser, Thomas (Hamilton)|
|Blyton, William||Davies, Ifor (Gower)||Gaitskell, Rt. Hon. Hugh|
|Boardman, H.||Delargy, Hugh||Galpern, Sir Myer|
|Bowden, Herbert W. (Leics, S.W.)||Dempsey, James||Ginsburg, David|
|Boyden, James||Diamond, John||Gooch, E. G.|
|Braddock, Mrs. E. M.||Dodds, Norman||Gordon Walker, Rt. Hon. P. C.|
|Brown, Thomas (Ince)||Donnelly, Desmond||Gourlay, Harry|
|Griffiths, Rt. Hon. James (Llanelly)||McLeavy, Frank||Ross, William|
|Hale, Leslie (Qldham, W.)||Mallalieu, E. L. (Brigg)||Silverman, Sydney (Nelson)|
|Hamilton, William (West Fife)||Mallalieu, J. P. W. (Huddersfield, E.)||Slater, Joseph (Sedgefield)|
|Hannan, William||Manuel, A. C.||Small, William|
|Hart, Mrs. Judith||Marquand, Rt. Hon. H. A.||Smith, Ellis (Stoke, S.)|
|Hayman, F. H.||Mason, Roy||Soskice, Rt. Hon. Sir Frank|
|Hill, J. (Midlothian)||Mayhew, Christopher||Steele, Thomas|
|Hilton, A. V.||Mendelson, J. J.||Stones, William|
|Holman, Percy||Millan, Bruce||Taylor, John (West Lothian)|
|Houghton, Douglas||Mitchison, G. R.||Thompson, Dr. Alan (Dunfermline)|
|Hughes, Cledwyn (Anglesey)||Moody, A. S.||Thornton, Ernest|
|Hughes, Emrys (S. Ayrshire)||Morris, John||Timmons, John|
|Hughes, Hector (Aberdeen, N.)||Moyle, Arthur||Ungoed-Thomas, Sir Lynn|
|Hunter, A. E.||Mulley, Frederick||Wainwright, Edwin|
|Hynd, H. (Accrington)||Noel-Baker, Francis (Swindon)||Warbey, William|
|Hynd, John (Attercliffe)||Noel-Baker, Rt. Hn. Philip (Derby,S.)||Wheeldon, W. E.|
|Irvine, A. I. (Edge Hill)||Oram, A. E.||White, Mrs. Eirene|
|Janner, Barnett||Owen. Will||Whitlock, William|
|Jay, Rt. Hon. Douglas||Padley, W. E.||Wilcock, Croup Capt. C. A. B.|
|Jenkins, Roy (Stechford)||Pannell, Charles (Leeds, W.)||Wilkins, W. A.|
|Jones, J. Idwal (Wrexham)||Parker, John (Dagenham)||Willey, Frederick|
|Jones, T. W. (Merioneth)||Paton, John||Williams, D. J. (Neath)|
|Kelley, Richard||Pearson, Arthur (Pontypridd)||Williams, W. R. (Openshaw)|
|Key, Rt. Hon. C. W.||Peart, Frederick||Willis, E. G. (Edinburgh, E.)|
|King, Dr. Horace||Pentland, Norman||Wilson, Rt. Hon. Harold (Huyton)|
|Lawson, George||Price, J. T. (Westhoughton)||Winterbottom, R. E.|
|Lee, Frederick (Newton)||Probert, Arthur||Woodburn, Rt. Hon. A.|
|Loughlin, Charles||Pursey, Cmdr. Harry||Woof, Robert|
|Mabon, Dr. J. Dickson||Randall, Harry||Yates, Victor (Ladywood)|
|MacColl, James||Rankin, John||Zilliacus, K.|
|McInnes, James||Redhead, E. C.|
|McKay, John (Wallsend)||Roberts, Albert (Normanton)||TELLERS FOR THE NOES:|
|Mackie, John||Rogers, G. H R. (Kensington, N.)||Mr. Howell and Dr. Broughton|
I do not want to delay the Committee, but the provision is being put into the Bill rather late and it is interesting as showing some uncertainty in the mind of the Government about the Clause. Indeed, as the discussion on the Clause proceeds it becomes only too clear that the uncertainty which already prevails—
Order. There is too much noise going on in the Chamber for hon. Members to be able to hear what the hon. Member for Orkney and Shetland (Mr. Grimond) is saying.
From the discussions on the Clause it is apparent both that the Government must have had some misgivings to have introduced the Amendment and that the Income Tax law in general, as pointed out again and again by the hon. Member for Sowerby (Mr. Houghton), is becoming so complicated as to be far beyond the comprehension of even in some cases lawyers and certainly ordinary people and that it will not be made any simpler by the passage of the Bill. I suggest to the Solicitor-General that he might go on his summer holidays thinking how the provision could be simplified next year.
It is also a serious criticism of the Income Tax law that the temptation to evasion should be so great that it is worth while going to the length to which undesirable people go to evade the law.
On that Amendment the precedent is Section 221 of the 1922 Act. We are told that has worked very well. I am not sure what that means, but even if it has worked well in that respect for this type of procedure I do not think that anyone doubts that this Clause as a whole introduces not entirely a new but a big extension of the existing feature of the law; that is to say it goes further than usual in deciding whether certain transactions attract tax or not by looking at the motives behind them. Bearing that in mind, I should like to ask one or two questions about this procedure even though I recognise that it has precedents.
There is no onus on the person in question to make a statutory declaration, as I understand it. He may let that go and rely on his right of appeal to the special commissioners and the tribunal. It will not be held against him in any way if he chooses not to make a statutory declaration but simply to rely on his right of appeal. I take it that that is so.
Secondly, as was mentioned by the hon. and learned Member for Kettering (Mr. Mitchison), when a tribunal considers the matter it will have the declaration and certificate and counter-statement, but it is not entitled to call for anything else, as I understand it, nor to ask that anyone should appear before it. The tribunal will consider the matter on those documents. The ultimate appeal, except on matters of law, goes back to the same tribunal which has already considered the matter on the statutory declaration, the certificate and the counter-statement. I do not know whether there has been any protest under the existing procedure regarding Surtax, but it would seem that, whatever the form of law, a person in this position may think that his ultimate appeal is prejudiced, that the tribunal before which he is appearing has already considered the matter, possibly on incomplete evidence.
While on the whole I welcome this in so far as it shows some hesitation on the part of the Government about the whole procedure, I should be grateful if the Solicitor-General would say something more on those points.
It would be ungenerous of the back benchers on this side of the Committee not to say "Thank you" to the Government for this Amendment, even though I realise that this must have given great pain to the hon. and learned Gentleman, who seems to consider that agreement to any Amendment to please back-benchers on this side of the Committee is something which shows a lack of purpose on the part of the Government. We should like to thank my right hon. Friend the Chancellor and his colleagues for giving this extra small but, I hope, useful protection to the subject.
I should like to emphasise once again that whatever the effect of this Amendment—frankly, I do not think it will be very great—it does not diminish our responsibility as legislators for getting subsections (1), (2) and (7) as definite as reasonable and as fair as possible.
I wish to put one question to the Solicitor-General regarding timing. It has been agreed by everybody who has discussed this matter that in the past one difficulty about legislating against this kind of practice is that the Revenue is always a long way behind the practice which it is trying to stop. The effect of this Amendment is to introduce a considerable delay of thirty days plus, and possibly two months, compared with what the procedure would have been had this Clause been unamended.
My question to the Solicitor-General is, suppose that the Revenue discovers a practice which comes within the provisions of this Clause. It then gives what is now, not directions, but notice to the person concerned and he has the advantage of a thirty-day period in which to make a submission and some further delay after that occurs. Let us suppose that at the end of this it is decided that the transaction in question falls within the scope of the Bill. Does that mean that during the two months which have elapsed any other operators who may have been indulging in similar transactions will, in consequence of the delay, escape the effects of the Clause?
I regard the Amendment as being thoroughly bad, for a number of reasons. First, it makes the whole procedure under the Clause considerably more complicated. One can never tell whether adding to the complications of the Clause will discourage the Inland Revenue authorities from carrying it out to its fullest extent, but it is almost certain to encourage persistent tax avoiders to use the procedure to the fullest extent in order to add to the delay before the Inland Revenue authorities take the steps open to them under the Clause. From that point of view, if from no other, the new provision is unsatisfactory.
Even more unsatisfactory are the details of the procedure as laid down in the Amendment. One of the great difficulties, which will apply not only to this Clause but to preceding and subsequent ones, is that of eliciting all the facts and circumstances about a certain transaction. It will be difficult to operate the Clause because the Inland Revenue authorities will have extreme difficulty in discovering the details of various tax avoidance transactions, especially where they have no power to call upon the taxpayer voluntarily to inform them of transactions which are taking place.
Under the procedure laid down by the Amendment the tribunal has to make a decision whether or not there is a prima facie case that a transaction comes within the ambit of the Clause. It is, therefore, important to consider the facts and information they require in coming to that decision. We naturally want to give every protection to the potential taxpayer, but we also want to put the Inland Revenue on equal terms, as far as possible.
In the essence of things, we are dealing with circumstances all of which will be known only to the Taxpayer, in the first place at any rate, and only some of which will be known to the Inland Revenue authorities. Yet the statement of facts which the taxpayer has to put to the Commissioners, for transmission to the tribunal, is deliberately selective. It is a statutory declaration to the effect that in the taxpayer's opinion the Clause does not apply to him. He is required to state the facts and circumstances upon which his opinion is based. In other words, he will be deliberately allowed to select those facts and circumstances about the transactions which prove his point of view. He is under no obligation to give a full, correct and accurate disclosure of all the facts and circumstances of the case, which is the only proper foundation for a final decision.
It may be argued that this is something for a further stage of the proceedings, but, as has been pointed out, if no prima facie case is established, under the Amendment the proceedings are stopped altogether, and the fact that the statutory declaration has not included all the relevant facts and circumstances is something which no one can do anything about.
If hon. Members study subsection (6), they will understand how defective this Amendment is. Subsection (6) deals with the circumstances in which the taxpayer makes a voluntary statement to the Commissioners about a transaction which he
feels might be affected by the Clause. It is provided under that subsection that the particulars which the taxpayer gives under the subsection.
…shall be such as to make full and accurate disclosure of all facts and considerations relating thereto which are material to be known to the Commissioners….
If the taxpayer does not make a full and accurate disclosure of all the facts and considerations, then any notification under the subsection which he has given to the Commissioners shall be void. In other words, the Inland Revenue is under no disadvantage here, because the taxpayer has to give a full and accurate disclosure of all the facts and circumstances.
It is precisely the absence of this kind of safeguard for the Revenue in the Amendment as now drafted which makes me think that far from it being unimportant from the point of view of the tax avoider, as the hon. Member for Basingstoke (Mr. Denzil Freeth) has said, it might, on the contrary, be very important. It might be possible for him to give a selection of facts and circumstances which can only lead the tribunal to the view that there is no prima facie case. The Inland Revenue, which may have suspicions about the transaction, cannot have access to the full facts and is, therefore, not in a position to answer all the points made by the taxpayer.
I do not expect the Government to be willing to withdraw the Amendment—[HON. MEMBERS: "Why not?"]—some of my hon. Friends have more confidence in the Government than I have—but we are entitled to ask them at least to look at this principle again. It is objectionable in principle because of its complications; it is objectionable because it adds complication to the procedure, and it is particularly objectionable because of the kind of procedure laid down. We are entitled to ask the Government at least to amend this at a later stage so that the defects in the drafting can be remedied. If they are not willing to do that—and perhaps even if they are—the Committee ought to reject this Amendment.
The Solicitor-General was at pains to explain to the Committee what this Amendment does, but I do not think he gave us a real explanation of why it is considered necessary. He said that it had been welcomed in various quarters, but why is it necessary? We believe that it is an over-elaboration of the apparatus of appeal. The hon. and learned Gentleman called to his aid Section 251 of the Income Tax Act dealing with directions in the case of Surtax.
Two things arise on that. One is that Section 251 has been there all the time. It is not, surely, a recent discovery by the Chancellor that the machinery of appeal under Section 251 exists. When they were drafting their original proposals for the machinery of appeal, surely regard was had to existing forms of appeal in similiar cases. I have no doubt that Section 251 was well in mind, but there are important differences between the machinery in Section 251 and what we are dealing with here.
In the first place, in a case of a Surtax direction it is the Special Commissioners themselves who give the direction and they serve the notice on the taxpayer. Then he may make a statutory declaration very much in the terms incorporated in the Amendment. The Special Commissioners, who gave the original direction, then consider the contents of the statutory declaration and, as Section 251 (2) of the Income Tax Act, 1952, says:
…the Special Commissioners shall not, unless they see reason to the contrary, take any further action …
when they have received the statutory declaration.
So the first stage is the direction of the Special Commissioners, the second stage is the delivery by the taxpayer, if he so wishes, of a statutory declaration, and the third stage is that the Special Commissioners then consider the statutory declaration and decide whether to proceed further or not. If they decide to proceed further, they send the statutory declaration with their counter-statement to the Board of Referees and at the same time the Commissioners of Inland Revenue, to be distinguished from the Special Commissioners, have the right themselves to send their views to the Board of Referees. Then the Board of Referees considers all the statements and is empowered to make a determination which is final and conclusive.
That is in contrast to the machinery proposed under the Amendment. In the first place, it is not the Special Commissioners who will give the directions. No one will give directions any more, but the Commissioners of Inland Revenue will serve the notice on the taxpayer. Then he may deliver a statutory declaration giving his opinion and the reasons why he does not think he is covered by the Section. That statutory declaration, together with any counter statement by the Commissioners of Inland Revenue, will then go to the referees. The referees will then decide whether there is a prima facie case. If they decide that there is a prima facie case, the substantive appeal goes to the Special Commissioners and from them there can be an appeal to the referees.
This, surely, is a much more elaborate procedure than that laid down under Section 251. There is nothing in the original proposals in this Clause which allows the Commissioners of Inland Revenue to deal with a statutory declaration against their original direction, which is the case under Section 251.
It is difficult for us to understand why there should be this over-elaboration of the machinery of appeal when in the first instance the matter is removed from the jurisdiction of the Commissioners of Inland Revenue to give the notification and goes straight to the Special Commissioners and from them to the Board of Referees or the tribunal and gives the taxpayer two tribunals of adjudication upon the original notification of the Commissioners of Inland Revenue.
In the case of Section 251, first there is the jurisdiction of the Special Commissioners who first gave the notice, and then the Board of Referees, which seems a shortened version of the machinery of appeal. Having regard to the attempts we are making in this Clause closely to define the kind of transactions which will be the subject of a notification—admittedly we are not doing it precisely, but we are attempting to do it in such a way that there will be no mistaking the sort of transaction this Clause is designed to check—we on these benches can only feel that for some reason, unspecified and unexplained, the Chancellor is in retreat.
It is a curious thing that before the Budget the Chancellor goes into purdah. On Budget day he steps forth into the arena, clad in shining armour, and adopts certain aggressive postures. Thereafter he goes into retreat. This is not really the conscientious desire of the Government to provide adequate safeguards to the subject. This is a sop to the opposition to this Clause. In these debates the whole arrangement of this Chamber is inconvenient because the opposition to the hon. and learned Gentleman's proposals is from behind him.
No. But the speeches of the hon. and learned Member's friends in the Chamber and their behaviour in the Lobby afterwards are two very different things. I do not want to embarrass the hon. and learned Member any more than is necessary.
There is more than one way of saying "Thank you". We quite understand, from the way in which the hon. Member for Basingstoke said it, what was in his mind and the minds of his hon. Friends. So, with every desire to safeguard the rights of the subject and to ensure that injustice is not done, we cannot regard this as a bona fide Amendment. I do not know whom it will deter most, the Inland Revenue or the taxpayer—only experience will show.
There is a little distraction going on around me, but I believe that my hon. Friend the Member for Gloucester (Mr. Diamond) made the point: is it not better, if an appeal is to be heard, to have the whole appeal heard without the preliminary canter of a statutory declaration with a counter statement, both in writing? Is that not better than a system under which the tribunal to determine whether there is a prima facie case will not hear the parties in the first place? That is a most important point. When judging motives it is desirable to see what sort of person it is one is dealing with. We often hear of judges and juries deciding in their own minds whether a person is lying or telling the truth by his demeanour, the way he gives evidence, the explanation he offers and his replies to questions. The determination of a prima facie case will be made by the tribunal which will not hear, as I understand it, any of the parties in the first instance. It will look at the papers and snap: prima facie or no prima facie case. If there is no prima facie case, everyone is stopped from further action thereafter, the Commissioners of Inland Revenue are stopped from further action. If there is a prima facie case, the real business of hearing the appeal begins. This is circumlocutory and unnecessary, and I believe that its real motive is that of surrender to the criticism of his hon. Friends behind him.
I am very grateful to my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) for what he said. My right hon. Friend makes no apologies at all for attaching weight to the opinions of those who sit behind him and whose views he has learned to treat with respect. I can well understand that that is not a sentiment which readily commends itself to the Opposition.
We fully understand the hon. and learned Gentleman's feelings and we know that he has to treat his back benchers with respect. Our objection is to the loss of public money as a result of his doing it. We well remember that two years ago many millions of pounds were lost because of the surrender to the back benches, and we are afraid that this may be happening again.
That, again, is a completely reckless and unjustifiable statement. I think all who know my right hon. Friend will agree that if he thought that the Amendment involved the loss of public money, he would be the first to say that he would not present it to the Committee.
The hon. Member for Sowerby (Mr. Houghton) asked why this was necessary. The desirability of this provision, as I pointed out in moving the Amendment, is so that the exercise of the power conferred by the Clause can be governed by the decision of the tribunal from the outset. That seems to me, as it seems to all fair-minded commentators outside, an important safeguard for the liberty of the ordinary taxpayer who may be concerned under the Clause.
I entirely agree with my hon. Friend the Member for Basingstoke that this does not affect our duty to scrutinise the other parts of the Clause. Nevertheless, while proceeding as effectively and strenuously as we may against the tax avoider, it is our duty to provide every reasonable safeguard for ordinary business transactions, and it is because this is an additional safeguard that I commend it to the Committee.
The first question asked by the hon. and learned Member for Kettering (Mr. Mitchison) was, will it work? The comparable provisions under the Surtax arrangements have worked well since 1927. He said that this is an extreme complication, and that was echoed by his hon. Friend the Member for Glasgow, Craigton (Mr. Millan) in another of those most effective speeches which have so impressed the Committee during the passage of the Bill.
The hon. Member must give me an opportunity to answer them.
The hon. and learned Member, having referred to the extreme complication of the Clause, went on to say that it is no use having an interlocutory procedure unless we add to it a procedure by case stated up to the High Court, the Court of Appeal, and, if necessary, presumably the House of Lords. I fail to see how he reconciles those two arguments. An appeal at this stage, at the interlocutory stage, is, I think, quite unnecessary and quite unsuited to the kind of procedure which we have in mind.
The hon. and learned Member next said that the Inland Revenue, in view of this provision, will be reluctant to set the Clause in motion. I can assure him that there will be no such reluctance; and there is no reason to think that there will be any greater reluctance in view of this provision than there is to set the Surtax direction in motion because of Section 251.
There was then an argument, which was founded on a misapprehension, which also found expression in other quarters of the Committee. It was said that this is very unfair to the Inland Revenue because it will not have full information at this stage. That argument failed to take cognisance of Clause 27, which gives the Inland Revenue power to obtain information for the purposes of this Clause and, of course, it can invoke its powers under that Clause before giving any notification under this Clause.
That was the point made by the hon. Member for Orkney and Shetland (Mr. Grimond) and the hon. Member for Craigton. He said that the facts are known only to the taxpayer. That is not correct. They will already have been elicited by the Inland Revenue under Clause 27. In addition, there is the further safeguard that the taxpayer is bound to set out the facts by a statutory declaration, so that he is subject to the penalty of the criminal law for perjury, if necessary.
In addition, one must have regard to the Inland Revenue counter-statement which will enable the tribunal to decide at the outset, as an interlocutory matter, whether a prima facie case has been made out. Of course, if there is any doubt—of course, if it is the sort of matter in which the tribunal would wish to see the demeanour of the witness in person—it will say that no prima facie case is made out, and that is the end of the matter—
Yes, that is so. That is why it seemed to be quite unsuitable to have the elaboration of this procedure by way of appeal at this stage.
The hon. Member for Orkney and Shetland asked three questions. He asked, first, whether there was any onus on the person to make a statutory declaration at this stage. He was quite right in saying that there is none at all. It is a machinery that can be set in motion at the instance of the taxpayer. If he feels that it is not expedient in his case, he need not do so.
I have answered the hon. Gentleman's second question, which referred to the information that is and should be available to the Inland Revenue. The hon. Gentleman asked, thirdly, about the taxpayer going back to the same tribunal for an ultimate decision. That is by no means unusual. One might go, for example, to the regular court, the High Court, and say that as no prima facie case has been made out on the written statement of the case presented by the parties the action should be dismissed out of hand. If that submission fails, no party feels in any way prejudiced by going back to the same court.
The hon. Member for Grimsby (Mr. Crosland) put two points to me, the first of which was about delay. This procedure, of course, involves a possible delay of thirty days. That, particularly in the context of the time it takes to decide these complicated tax matters, seems a small price to pay for an additional safeguard for the ordinary commercial transaction. The hon. Gentleman also asked whether any similar transactions get a 30-day respite as a result of one of these interlocutory motions being set in action. The answer is, "No." The Inland Revenue will proceed concurrently against any similar transaction that comes to its knowledge.
In the end, it comes to this. We have thought it right to introduce this additional safeguard so that the taxpayer who has it clear in his mind, and can establish the facts to support it, that his transaction is a bona fide commercial one
I do not intend to detain the Committee for long, as the main arguments have been put by my Ion. Friends, and by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) when moving his own Amendment a few minutes ago. I must, however, make clear why we intend to oppose this Amendment in the Division Lobbies. My hon. Friends have already made clear that they think the procedure is too elaborate, too labyrinthine, too long-drawn, and involves more hearings than are necessary for securing the justice that the whole Committee would want to see available to all concerned. My hon. Friend the Member for Sowerby (Mr. Houghton) showed quite clearly that this is different from the procedure which is applied in the case of the Surtax directions. That is the first point.
The second point is that we are very unhappy indeed about this proposal, which would enable a decision to be taken on whether or not a prima facie case had been made out purely on the basis of written evidence. Let us be quite frank about this. Although there are provisions in the Bill for dealing with anyone who does not state a full case, who withholds facts, or who suppresses facts, there must, at the margin, be some temptation to suppress evidence that might just turn the scales in a hearing of this kind.
We have to remember that most of the people who are being dealt with under this Clause are thoroughly unscrupulous and are fundamentally anti-social in their approach. This has been made very clear in speeches from this side of the Committee and from the Government Front Bench, although I have not heard much said on those lines from the Government back benches today. In fact, nearly all the speeches that we have heard during the last few days have been designed to present a rather different picture.
The debates that we have had on Clause 26 so far have made quite clear—indeed, I wish they could have been televised—the difference between the two sides of the Committee on these issues. Every speech from this side of the Committee has been designed to fortify, strengthen and protect the Revenue against a group of parasites who do no good at all to the community and whose one purpose is to make money at the expense of the public purse. That is the picture which has been presented on this side of the Committee, and I am bound to say that a very different picture has come from the benches opposite.
We regret that the Chancellor has yielded to this pressure from behind him and I am sorry that the Solicitor-General should go out of his way to deny this. He has yielded to pressure from behind him as he did two years ago. I agree that this is not so reprehensible or so serious as it was two years ago; indeed, it may not be so costly. On the other hand, it is a pretty squalid surrender and I am surprised that any one of the standing of the hon. and learned Gentleman, whom we all respect should have gone to such lengths to try to justify what has been done. It has been a sell-out to some of the interests behind him.
We are afraid that at the margin it tilts the scales against the Revenue and in favour of these very unscrupulous people whom the Attorney-General, the Chancellor, the Financial Secretary and the Solicitor-General have been so busy condemning today. The Solicitor-General seemed to think there was little danger that the Inland Revenue would be more cautious about taking up one of these cases. I hope he is right, but I fear he is wrong. As I say, the scales are now weighted just the other way.
The procedure is made more difficult, and the Revenue will want to be absolutely certain that they have a 100 per cent. stone-cold case before they go into the first one, and there will be same lengthy delays before they go into these matters, which means that a lot of people will get away with it. The deterrent effect will be less because some of the more unscrupulous people in this profession will decide that they have a very good chance of getting away with it.
We all know how difficult it is for the Revenue to make out a case in many other aspects of tax enforcement. It is not until the question of an assessment is raised that the Revenue is able to get the first basic information to prove that there is a fiddle going on, and I am afraid that to some extent that will be the case here.
We are sorry that the Chancellor has introduced an Amendment designed to make things a little bit easier for these people. These people are in terms of their motives and in terms of their practices as contrary to the public interest, as were the smugglers of old with whom previous Chancellors of the Exchequer set out to deal, particularly William Pitt and others many years ago. The only difference is that they are far less romantic and glamorous and they rob the Exchequer on a far vaster scale than all the smugglers who ever sailed the High Seas.
I think there are modern versions which might apply. I must say that I had some difficulty, although I enjoyed the hon. Gentleman's speech earlier, in following all the implications of it, as I think he had. We did enjoy his speech, though I have still to work out quite what was his last intervention.
The fact remains that this has been a very costly series of practices, as the Attorney-General made very clear today in his helpful speeches. The practices are developing all the time. Even between the publication of the Finance Bill and the publication of the Chancellor's Amendment, no doubt another dozen practices were worked out designed to get round some of the Clauses which have been brought before the Committee. We hoped that Clause 26 would be a long-stop to deal with these practices. We very much fear, after what has happened today, that it will fail to be any such thing, and for these reasons we intend to vote against the Amendment in the Lobby.
|Division No. 92.]||AYES||[10.11 p.m.|
|Agnew, Sir Peter||Bell, Philip (Bolton, E.)||Boyle, Sir Edward|
|Aitken, W. T.||Bennett, F. M. (Torquay)||Brewis, John|
|Amory, Rt. Hn. D. Heathcoat (Tiv'tn)||Bidgood, John C.||Brooman-White, R.|
|Ashton, Sir Hubert||Biggs-Davison, John||Browne, Percy (Torrington)|
|Atkins, Humphrey||Bingham, R. M.||Bullard, Denys|
|Balniel, Lord||Bishop, F, P.||Butler, Rt. Hn. R. A. (Saffron Walden)|
|Barber, Anthony||Black, Sir Cyril||Carr, Compton (Barons Court)|
|Barlow, Sir John||Bossom, Clive||Carr, Robert (Mitcham)|
|Barter, John||Bourne-Arton, A.||Chataway, Christopher|
|Batsford, Brian||Bowen, Roderic (Cardigan)||Chichester-Clark, R.|
|Baxter, Sir Beverley (Southgate)||Box, Donald||Clark, Henry (Antrim, N.)|
|Clark, William (Nottingham, S.)||Hughes-Young, Michael||Percival, Ian|
|Clarke, Brig. Terence (Portsmth, W.)||Hutchison, Michael Clark||Peyton, John|
|Cleaver, Leonard||Iremonger, T. L.||Pickthorn, Sir Kenneth|
|Cole. Norman||Irvine, Bryant Godman (Rye)||Pike, Miss Mervyn|
|Collard, Richard||Jackson, John||Pitman, I. J.|
|Cooke, Robert||James, David||Pott, Percivall|
|Cordeaux, Lt.-Col. J. K.||Jenkins, Robert (Dulwich)||Powell, J. Enoch|
|Corfield, F. V.||Johnson, Dr. Donald (Carlisle)||Prior, J. M. L.|
|Costain, A. P.||Jones, Rt. Hn. Aubrey (Hall Green)||Proudfoot, Wilfred|
|Coulton, J. M.||Kerans, Cdr. J. S.||Ramsden, James|
|Courtney, Cdr. Anthony||Kerr, Sir Hamilton||Redmayne, Rt. Hon. Martin|
|Craddock, Beresford (Spelthorne)||Kirk, Peter||Rees-Davies, W. R.|
|Crosthwaite-Eyre, Col O. E,||Kitson, Timothy||Ridley, Hon. Nicholas|
|Crowder, F. P.||Langford-Holt, J.||Ridsdale, Julian|
|Cunningham, Knox||Leavey, J. A.||Roberts, Sir Peter (Heeley)|
|Curran, Charles||Leburn, Gilmour||Robinson, Sir Roland (Blackpool, S.)|
|Currie, G. B. H.||Legge-Bourke, Maj. H.||Roots, William|
|Dalkeith, Earl of||Legh, Hon. Peter (Petersfield)||Ropner, Col. Sir Leonard|
|d'Avigdor-Goldsmid, Sir Henry||Lewis, Kenneth (Rutland)||Scott-Hopkins, James|
|Deedes, W. F.||Lilley, F. J. P.||Seymour, Leslie|
|de Ferranti, Basil||Lindsay, Martin||Shaw, M.|
|Elliott, R. W.||Linstead, Sir Hugh||Simon, Sir Jocelyn|
|Emery, Peter||Litchfield, Capt. John||Smith, Dudiey (Br'ntf'rd & Chiswick)|
|Emmet, Hon. Mrs. Evelyn||Lloyd, Rt. Hon. Selwyn (Wirral)||Smithers, Peter|
|Farey-Jones, F. W.||Loveys, Walter H.||Spearman, Sir Alexander|
|Fell, Anthony||Lucas-Tooth, Sir Hugh||Stevens, Geoffrey|
|Fisher, Nigel||MacArthur, Ian||Stoddart-Scott, Col. Sir Malcolm|
|Fletcher-Cooke, Charles||McLaren, Martin||Storey, Sir Samuel|
|Fraser, Ian (Plymouth, Sutton)||Maclean, Sir Fitzroy (Bute&N.Ayrs.)||Summers, Sir Spencer (Aylesbury)|
|Freeth, Denzil||Macleod, Rt. Hn. Iain (Enfield, W.)||Sumner, Donald (Orpington)|
|Gammans, Lady||MacLeod, John (Ross & Cromarty)||Temple, John M.|
|Gardner, Edward||McMaster, Stanley R.||Thatcher, Mrs. Margaret|
|Gibson-Watt, David||Macmillan, Rt. Hn. Harold (Bromley)||Thompson, Kenneth (Walton)|
|Glover, Sir Douglas||Macpherson, Niall (Dumfries)||Thompson, Richard (Croydon, S.)|
|Glyn, Dr. Alan (Clapham)||Maddan, Martin||Thornton-Kemsley, Sir Colin|
|Glyn, Sir Richard (Dorset, N.)||Maginnis, John E.||Thorpe, Jeremy|
|Goodhart, Philip||Maitland, Cdr. J. W.||Tiley, Arthur (Bradford, W.)|
|Goodhew, Victor||Manningham-Buller, Rt. Hn. Sir R.||Tilney, John (Wavertree)|
|Gower, Raymond||Markham, Major Sir Frank||Turner, Colin|
|Grant-Ferris, Wg Cdr. R. (Nantwich)||Marlowe, Anthony||Turton, Rt. Hon. R. H.|
|Green, Alan||Marten, Neil||van Straubenzee, W. R.|
|Gresham Cooke, R.||Matthews, Gordon (Meriden)||Vosper, Rt. Hon. Dennis|
|Grimond, J.||Mawby, Ray||Wade, Donald|
|Grimaston, Sir Robert||Maydon, Lt.-Cmdr. S. L. C.||Wakefield, Edward (Derbyshire, W.)|
|Grosvenor, Lt.-Col. R. G.||Molson, Rt. Hon. Hugh||Wall, Patrick|
|Hall, John (Wycombe)||Montgomery, Fergus||Ward, Dame Irene (Tynemouth)|
|Hamilton, Michael (Wellingborough)||Morrison, John||Watts, James|
|Harris, Frederic (Croydon, N.W.)||Mott-Radclyffe, Sir Charles||Webster, David|
|Harrison, Col. J. H. (Eye)||Nabarro, Gerald||Wells, John (Maidstone)|
|Harvey, John (Walthamstow, E.)||Neave, Airey||Whitelaw, William|
|Hay, John||Nicholson, Sir Godfrey||Wills, Sir Gerald (Bridgwater)|
|Heald, Rt. Hon. Sir Lionel||Noble, Michael||Wilson, Geoffrey (Truro)|
|Hendry, Forbes||Oakshott, Sir Hendrie||Wise, A. R.|
|Hill, Mrs. Eveline (Wythenshawe)||Osborn, John (Hallam)||Wolrige-Gordon, Patrick|
|Hill, J. E. B. (S. Norfolk)||Osborne, Cyril (Louth)||Wood, Rt. Hon. Richard|
|Hobson, John||Page, A. J. (Harrow West)||Woodhouse, C. M.|
|Hocking, Philip N.||Page, Graham||Worsley, Marcus|
|Hollingworth, John||Pannell, Norman (Kirkdale)||Yates, William (The Wrekin)|
|Hopkins, Alan||Pearson, Frank (Clitheroe)|
|Howard, Gerald (Cambridgeshire)||Peel, John||TELLERS FOR THE AYES:|
|Mr. Finlay and Mr. Sharples.|
|Ainsley, William||Dempsey, James||Hayman, F. H.|
|Allaun, Frank (Salford, E.)||Diamond, John||Hill, J. (Midlothian)|
|Allen, Scholefield (Crewe)||Donnelly, Desmond||Hilton, A. V.|
|Awbery, Stan||Ede, Rt. Hon. Chuter||Holman, Percy|
|Bacon, Miss Alice||Edelman, Maurice||Houghton, Douglas|
|Baxter, William (Stirlingshire, W.)||Edwards, Rt. Hon. Ness (Caerphilly)||Hughes, Cledwyn (Anglesey)|
|Benson, Sir George||Evans, Albert||Hughes, Emrys (S. Ayrshire)|
|Blackburn, F.||Fernyhough, E.||Hughes, Hector (Aberdeen, N.)|
|Blyton, William||Fletcher, Eric||Hunter, A. E.|
|Boardman, H.||Forman, J. C.||Hynd, H. (Accrington)|
|Bowden, Herbert W. (Leics, S.W.)||Fraser, Thomas (Hamilton)||Hynd, John (Attercliffe)|
|Boyden, James||Gaitskell, Rt. Hon. Hugh||Irvine, A. J. (Edge Hill)|
|Braddock, Mrs. E. M.||Galpern, Sir Myer||Janner, Barnett|
|Brown, Thomas (Ince)||George, Lady Megan Lloyd||Jay, Rt. Hon. Douglas|
|Cliffe, Michael||Ginsburg, David||Jenkins, Roy (Stechford)|
|Craddock, George (Bradford, S.)||Gordon Walker, Rt. Hon. P. C.||Jones, J. Idwal (Wrexham)|
|Cronin, John||Gourlay, Harry||Jones, T. W. (Merioneth)|
|Crosland, Anthony||Griffiths, Rt. Hon. James (Llanelly)||Kelley, Richard|
|Crossman, R. H. S.||Hale, Leslie (Oldham, W.)||King, Dr. Horace|
|Cullen, Mrs. Alice||Hamilton, William (West Fife)||Lawson, George|
|Davies, Ifor (Gower)||Hannan, William||Lee, Frederick (Newton)|
|Delargy, Hugh||Hart, Mrs. Judith||Loughlin, Charles|
|Mabon, Dr. J. Dickson||Pentland, Norman||Ungoed-Thomas Sir Lynn|
|MacColl, James||Price, J. T. (Westhoughton)||Wainwright, Edwin|
|McInnes, James||Probert, Arthur||Warbey, William|
|McKay, John (Wallsend)||Pursey, Cmdr. Harry||Wheeldon, W. E.|
|Mallalieu, E. L. (Brigg)||Randall, Harry||White, Mrs. Eirene|
|Manuel, A. C.||Rankin, John||Whitlook, William|
|Marquand, Rt. Hon. H. A||Redhead, E. C.||Wilcock, Group Capt. C. A. B.|
|Mayhew, Christopher||Reynolds, G. W.||Wilkins, W. A.|
|Mendelson, J. J||Roberts, Albert (Normanton)||Willey, Frederick|
|Millan, Bruce||Rogers, G. H. R. (Kensington, N.)||Williams, D. J. (Neath)|
|Mitchison, G. R.||Ross, William||Williams, W. R. (Openshaw)|
|Morris, John||Slater, Joseph (Sedgefield)||Willis, E. G. (Edinburgh, E.)|
|Mulley, Frederick||Small, William||Wilson, Rt. Hon. Harold (Huyton)|
|Noel-Baker, Francis (Swindon)||Smith, Ellis (Stoke, S.)||Winterbottom, R. E.|
|Oram, A. E.||Soskice, Rt. Hon. Sir Frank||Woodburn, Rt. Hon. A.|
|Owen, Will||Stones, William||Woof, Robert|
|Padley, W. E.||Taylor, John (West Lothian)||Yates, Victor (Ladywood)|
|Parker, John (Dagenham)||Thompson, Dr. Alan (Dunfermline)||Zilliacus, K.|
|Pearson, Arthur (Pontypridd)||Thornton, Ernest|
|Peart, Frederick||Timmons, John||TELLERS FOR THE NOES:|
|Mr. Howell and Dr. Broughton.|
Do I gather, Sir Gordon, that you are selecting the Amendment notwithstanding that it relates purely to the giving of directions, which have been excluded from the Clause? As a result of an earlier point of order, an Amendment was held to have fallen in consequence of Amendments previously accepted by the Government. If a similar situation prevails in this case, the Amendment is meaningless.
I beg to move, in page 23, line 8, to leave out from "inappropriate" to the end of line 27.
This Amendment, in the names of my hon. Friends and myself and of the hon. Member for Windsor (Sir C. Mott-Radclyffe), was put down before the Government introduced at the weekend their Amendment concerning the prima facie procedure point which we have been discussing. The object of the Amendment originally was to delete from subsection (4) the whole of the reference to the special tribunal. My hon. Friends and I thought it unnecessary to have a special tribunal and that the normal procedure for dealing with tax appeals should be adopted in this case as in any other disputed case under the tax code. It seemed to us to be an unnecessary complication.
I am sorry to interrupt the hon. Member, but perhaps it would be convenient to the Committee to discuss at the same time the Amendments in page 24, line 9, after "Revenue", insert "or", and line 10, leave out "or the tribunal".
I am obliged, Sir Gordon. It seemed to us that it would be introducing a completely unnecessary complication into the tax code to set up a special tribunal consisting of the chairman of the Board of Referees and two other persons appointed by the Lord Chancellor and to inject that special tribunal into the series of appeals which are open to any ordinary taxpayer in any ordinary case, namely, going from the General Commissioners to the Special Commissioners and then, on a point of law, to the High Court and, subsequently, to the Court of Appeal and, if necessary, to the House of Lords.
Everything that has been said during the discussion of the Clause reinforces the views which we hold, that the matters in Clause 26 can be dealt with just as efficiently under the ordinary procedure as by this specialised procedure. After all, there will not be many, if any, borderline cases of this kind and it will be relatively simple for any tribunal to distinguish between the racketeer, whom the whole Committee is determined should be prohibited from carrying on these tax avoidance schemes, and the legitimate company which is carrying on some genuine commercial transaction and which will be able to satisfy the court that its main and proper object is not tax avoidance.
I think that there was a complete case for the Amendment put down by the Government at the weekend, but the case is even stronger now. The introduction of the new subsection which we have been discussing at the invitation of the Attorney-General, namely, the idea that there should be a preliminary inquiry before some tribunal to see whether there is a prima facie case, a safeguard introduced by the Government as the result of considerable pressure from their back benchers, has rendered completely unnecessary this injection of a special tribunal.
I appreciate that the Committee has decided that the inquiry as to whether there is a prima facie case should go before the Tribunal. The Committee's decision in principle that some machinery, whereby a person may allege that there is no prima facie case against him, should still be retained does not mean that it is necessary to set up that tribunal, because that machinery can equally well be provided by the Commissioners.
As the Committee has asented to the Government's proposals for a preliminary inquiry, in the interest of the Revenue and of the taxpayer, I hope that the Government will feel that it is quite unnecessary to encumber the machinery for dealing with disputed cases on appeal by injecting a special tribunal between the Special Commissioners and the High Court.
While I am happy to be associated with the hon. Member for Islington, East (Mr. Fletcher) in all sorts of activities outside the House of Commons, I am less happy about being asociated with him on this Amendment to which, by a printer's error, my name has been added when it should have been added to the Amendment immediately following.
I can hardly speak for tears. The depth of my sympathy is inexpressible. I think it extremely odd—and it appeared in the last speech which we had from the right hon. Member for Huyton (Mr. H. Wilson), who has just returned to us, and it now appears in the speech of the legal luminary who has moved this Amendment—that we should have the assumption that one cannot predict, that nobody can predict, what form this culpable behaviour will take, that, therefore, one cannot define it in anticipation but one does assume that anyone who is going to be under the necessity of clearing himself of the mischief of being accused of this conduct will be both extremely unscrupulous and, as the right hon. Member for Huyton always says, very, very unscrupulous, and also wholly unmistakable, and that, therefore, one ought not to take any trouble to provide any sort of judicial safeguards for him.
That has been the series of assumptions made throughout. I think it very important that it should be clearly marked out and extremely useful that it should be a matter upon which the Opposition should have chosen to divide against us for once, and I hope they will go on dividing.
I have some sympathy with the academic luminary, the hon. Member for Carlton (Sir K. Pickthorn). It seems that he has a general point of some importance, and on this I take a little issue with my hon. Friend the Member for Islington, East (Mr. Fletcher).
It seems to me that the question of a tribunal goes generally with the question of making general directions of some sort. When the Royal Commission examined our tax avoidance methods and compared them with methods in most other countries, it concluded that we were exceptional in always trying to lay down in detailed and explicit Clauses precisely what could not be done. The Royal Commission remarked that, in contrast, its survey of the tax systems of several other countries suggested that the usual course was to approach the problem on the lines of some more general declaration of principle governing tax avoidance.
When the Royal Commission reported on the relative advantages or disadvantages of the two approaches, at that time on the advice of the Inland Revenue it recommended that the more radical approach adopted in most other countries, including many in the British Commonwealth, was not necessary. The Revenue at that time was satisfied with the powers that it had. Today it is clearly not satisfied with the powers that it has had or the methods that we have been using so far, and that is why we are debating the Clause at the moment.
I see considerable logic in the thought that if we are to move over so far only in the one Clause dealing with these devices—dividend stripping, bond washing and so on—but nevertheless it may be necessary on other occasions to move over to the new principle of the more general declaration of principle rather than the detailed and explicit description, then the idea of a tribunal, which is common in most other countries, may have some part to play.
So I should not like, taking the risk of dissenting from the views of my hon. legal luminary Friend, it to be thought that everyone on this side of the Committee was prepared as a matter of principle to reject the idea of a tribunal when introducing this relatively new principle into the system.
When the powers set out in the Clause were first adumbrated by my right hon. Friend, one of the matters on which independent authority of very considerable eminence fixed was that the only decision of fact would be by the Special Commissioners, and that thereafter only on questions of law would an appeal lie in cases of great importance where very considerable sums were involved. In particular, there was a notable article in The Times by a man whom I know the hon. Member for Islington, East (Mr. Fletcher) holds in very high regard—Professor Wheatcroft who speaks with great authority—in which he gave his opinion that the powers taken in the Clause are absolutely necessary, but that it is essential to have a second appeal on fact to a special tribunal.
It is quite wrong to think that this is only a safeguard for the taxpayer. It is not. It is in addition a safeguard for the Revenue. It means that the Revenue can have second thoughts and remarshal its case if necessary in the light of information with which it might have been surprised at the first hearing. It seems to me that, when the Revenue is being armed with new powers of counter-avoidance to which we attach importance, the taxpayer should have full and adequate rights of appeal. Large sums of money may be involved here and I have no hesitation in asking the Committee to reject the Amendment.
This is a new development in connection with a new Clause. The argument of my hon. Friend was based on the assumption that we were moving a long way towards general provisions in this Clause, but in fact we have moved a very small distance indeed. Subsection (1) gives the Revenue certain powers, and subsection (2) paragraphs (a), (b) and (c) proceed to take it away again fast and to define precisely the categories which are excluded.
The right hon. and learned Attorney-General has spent a great deal of time explaining clearly and helpfully that the more we pay attention to subsection (2) on special categories the smaller is the importance of the general direction covered in subsection (1). Because that general direction is so slight and the power given to the Inland Revenue is so slight the adjustment of the appeal machinery ought to be very slight. There is no need to complicate the machinery in the way suggested in the Bill. Any slight improvement could take the form of strengthening the Special Commissioners if the assumption is that the Special Commissioners are not adequate to carry out the new duties falling on them as a result of this Clause.
I wish to support what was said by my hon. Friend the Member for Islington, East (Mr. Fletcher). It seems to me that the only slight adjustment necessary would be a strengthening of the power of the Special Commissioners, and not to give the impression, as this Clause would do, that they are failing in their duty. They are not. They are carrying out their duty, I would say, to the satisfaction of the taxpayer and the Revenue, and certainly to that agent of the taxpayer, the accountant. I think that the answer is to strengthen the Commissioners and not to complicate the whole machinery by introducing this further tribunal.
|Division No. 93.]||AYES||[10.38 p.m.|
|Aitken, W. T.||Gresham Cooke, R||Page, Graham|
|Amory, Rt. Hn. D. Heathcoat (Tiv'tn)||Grimond, J.||Pannell, Norman (Kirkdale)|
|Ashton, Sir Hubert||Grimston, Sir Robert||Pearson, Frank (Clitheroe)|
|Atkins, Humphrey||Grosvenor, Lt.-Col. R. G.||Peel, John|
|Barber, Anthony||Hall, John (Wycombe)||Percival, Ian|
|Barlow, Sir John||Hamilton, Michael (Wellingborough)||Pickthorn, Sir Kenneth|
|Barter, John||Harrison, Col. J. H. (Eye)||Pitman, I. J.|
|Batsford, Brian||Harvey, John (Walthamstow, E.)||Pott, Percivall|
|Baxter, Sir Beverley (Southgate)||Heald, Rt. Hon. Sir Lionel||Powell, J. Enoch|
|Bell, Philip (Bolton, E.)||Hendry, Forbes||Prior, J. M. L.|
|Bennett, F. M. (Torquay)||Hill, Mrs. Eveline (Wythenshawe)||Proudfoot, Wilfred|
|Bidgood, John C.||Hobson, John||Ramsden, James|
|Bingham, R. M.||Hocking, Philip N.||Redmayne, Rt. Hon. Martin|
|Bishop, F. P.||Hollingworth, John||Ridley, Hon. Nicholas|
|Bossom, Clive||Hopkins, Alan||Ridsdale, Julian|
|Bourne-Arton, A.||Howard, Gerald (Cambridgeshire)||Roberts, Sir Peter (Heeley)|
|Bowen, Roderic (Cardigan)||Hughes-Young, Michael||Robinson, Sir Roland (Blackpool, S.)|
|Box, Donald||Hutchison, Michael Clark||Roots, William|
|Boyle, Sir Edward||Iremonger, T. L.||Ropner, Col. Sir Leonard|
|Brewis, John||Irvine, Bryant Godman (Rye)||Scott-Hopkins, James|
|Brooman-White, R.||Jackson, John||Seymour, Leslie|
|Browne, Percy (Torrington)||James, David||Sharples, Richard|
|Bullard, Denys||Jenkins, Robert (Dulwich)||Shaw, M.|
|Butler, Rt. Hn. R. A. (Saffron Walden)||Johnson, Dr. Donald (Carlisle)||Simon, Sir Jocelyn|
|Carr, Compton (Barons Court)||Jones, Rt. Hn. A. Creech (Wakefield)||smith, Dudley (Br'ntf'rd & Chiswick)|
|Carr, Robert (Mitcham)||Kerans, Cdr. J. S.||Smithers, Peter|
|Chataway, Christopher||Kerr, Sir Hamilton||Spearman, Sir Alexander|
|Clark, Henry (Antrim, N.)||Kirk, Peter||Stevens, Geoffrey|
|Clark, William (Nottingham, S.)||Kitson, Timothy||Stoddart-Scott, Col. Sir Malcolm|
|Clarke, Brig. Terence (Portsmth, W.)||Langford-Holt, J.||Storey, Sir Samuel|
|Cleaver, Leonard||Leavey, J. A.||Summers, Sir Spencer (Aylesbury)|
|Collard, Richard||Legge-Bourke, Maj. H.||Sumner, Donald (Orpington)|
|Cordeaux, Lt.-Col. J. K.||Legh, Hon. Peter (Petersfield)||Temple, John M.|
|Corfield, F. V.||Lewis, Kenneth (Rutland)||Thatcher, Mrs. Margaret|
|Coulson, J. M.||Lliley, F. J. P.||Thompson, Kenneth (Walton)|
|Courtney, Cdr. Anthony||Litchfield Capt. John||Thompson, Richard (Croydon, S.)|
|Craddock, Beresford (Spelthorne)||Lloyd, Rt. Hon. Selwyn (Wirral)||Thornton-Kernsley, Sir Colin|
|Crosthwaite-Eyre, Col. O. E.||Loveys, Walter H.||Tiley, Arthur (Bradford, W.)|
|Curran, Charles||Lucas-Tooth, Sir Hugh||Tilney, John (Wavertree)|
|Currle, G. B. H.||MacArthur, Ian||Turner, Colin|
|Dalkeith, Earl of||McLaren, Martin||Turton, Rt. Hon. R. H.|
|d'Avigdor-Goldsmid, Sir Henry||Maclean, SirFitzroy (Bute&N. Ayrs.)||van Straubenzee, W. R.|
|Deedes, W. F.||McMaster, Stanley R.||Vosper, Rt. Hon. Dennis|
|de Ferranti, Basil||Macmillan, Rt. Hn. Harold (Bromley)||Wakefield, Edward (Derbyshire, W.)|
|Elliott, R. W.||Macpherson, Niall (Dumfries)||Wall, Patrick|
|Emery, Peter||Maddan, Martin||Ward, Dame Irene (Tynemouth)|
|Emmet, Hon. Mrs. Evelyn||Maginnis, John E.||Watts, James|
|Finlay, Graems||Manningham-Buller, Rt. Hn. Sir R.||Webster, David|
|Fisher, Nigel||Marten, Neil||Wells, John (Maidstone)|
|Fletcher-Cooke, Charles||Matthews, Gordon (Meriden)||Whitelaw, William|
|Fraser, Ian (Plymouth, Sutton)||Mawby, Ray||Wilson, Geoffrey (Truro)|
|Freeth, Denzil||Maydon, Lt.-Cmdr. S. L. C.||Wise, A. R.|
|Gardner, Edward||Molson, Rt. Hon. Hugh||Wolrige-Gordon, Patrick|
|Gibson-Watt, David||Montgomery, Fergus||Wood, Rt. Hon. Richard|
|Glover, Sir Douglas||Morrison, John||Woodhouse, C. M,|
|Glyn, Dr. Alan (Clapham)||Nabarro, Gerald||Worsley, Marcus|
|Glyn, Sir Richard (Dorset, N.)||Neave, Airey||Yates, William (The Wrekin)|
|Goodhart, Philip||Nicholson, Sir Godfrey|
|Goodhew, Victor||Noble, Michael||TELLERS FOR THE AYES:|
|Gower, Raymond||Osborn, John (Hallam)||Mr. Chichester-Clark.|
|Grant-Ferris, Wg Cdr. R. (Nantwich)||Osborne, Cyril (Louth)||Mr. J. E. B. Hill.|
|Green, Alan||Page, A. J. (Harrow West)|
|Ainsley, William||Crosland, Anthony||Fraser, Thomas (Hamilton)|
|Allaun, Frank (Salford, E.)||Crossman, R. H. S.||Gaitskell, Rt. Hon. Hugh|
|Allen, Scholefield (Crewe)||Cullen, Mrs. Alice||Galpern, Sir Myer|
|Awbery, Stan||Davies, Ifor (Gower)||George, Lady Megan Lloyd|
|Bacon, Miss Alice||Delargy, Hugh||Ginstourg, David|
|Baxter, William (Stirlingshire, W.)||Dempsey, James||Gordon Walker, Rt. Hon. P. C.|
|Blackburn, F.||Diamond, John||Gourlay, Harry|
|Blyton, William||Donnelly, Desmond||Hannan, William|
|Bowden, Herbert W. (Leics, S.W.)||Ede, Rt. Hon. Chuter||Hart, Mrs. Judith|
|Boyden, James||Edwards, Rt. Hn. Ness (Caerphilly)||Hayman, F. H.|
|Braddock, Mrs. E. M.||Evans, Albert||Hilton, A. V.|
|Broughton, Dr. A. D. D.||Fernyhough, E.||Holman, Percy|
|Cliffe, Michael||Fletcher, Eric||Houghton, Douglas|
|Craddock, George (Bradford, S.)||Forman, J. C.||Hughes, Cledwyn (Anglesey)|
|Hughes, Emrys (S. Ayrshire)||Millan, Bruce||Stones, William|
|Hughes, Hector (Aberdeen, N.)||Mitchison, G. R.||Taylor, John (West Lothian)|
|Hunter, A. E.||Morris, John||Thompson, Dr. Alan (Dunfermline)|
|Hynd, John (Attercliffe)||Mulley, Frederick||Thornton, Ernest|
|Janner, Barnett||Noel-Baker, Francis (Swindon)||Wainwright, Edwin|
|Jay, Rt. Hon. Douglas||Oram, A. E.||Wheeldon, W. E.|
|Jenkins, Roy (Stechford)||Padley, W. E.||White, Mrs. Eirene|
|Jones, J. Idwal (Wrexham)||Parker, John (Dagenham)||Whitlock, William|
|Jones, T. W. (Merioneth)||Price, J. T. (Westhoughton)||Wilkins, W. A.|
|Kelley, Richard||Probert, Arthur||Williams, W. R. (Openshaw)|
|King, Dr. Horace||Randall, Harry||Willis, E. G. (Edinburgh, E.)|
|Lawson, George||Redhead, E. C.||Wilson, Rt. Hon. Harold (Huyton)|
|Loughlin, Charles||Reynolds, G. W.||Winterbottom, R. E.|
|Mabon, Dr. J. Dickson||Roberts, Albert (Normanton)||Woodburn, Rt. Hon. A.|
|McInnes, James||Rogers, G. H. R. (Kensington, N.)||Woof, Robert|
|Mallalieu, E. L. (Brigg)||Ross, William||Yates, Victor (Ladywood)|
|Manuel, A. C.||Slater, Joseph (Sedgefield)|
|Mayhew, Chriscopher||Small, William||TELLERS FOR THE NOES:|
|Mendelson, J. J.||Soskice, Rt. Hon. Sir Frank||Mr. Charles Howe'l and Mr. Cronin.|
Yes, Sir William. This Amendment and the one following it together have the effect of restricting the right of appeal to the tribunal to the taxpayer and removing from the Commissioners of Inland Revenue the right, upon their motion, to have access, on appeal, to the tribunal. At first sight it would appear merely fair and logical that in case of dissatisfaction, access to the new tribunal should be equally open to either of the parties, namely, to the taxpayer or to the Commissioners. However, I think that when the reason why this tribunal is provided for in the Clause is properly considered it will be seen to be logical that a right of access to it should be open only to the taxpayer, in case of his dissatisfaction.
The purpose of the tribunal, which interposes a new and additional appeal on fact for the purposes of this Clause, was very clearly put to the Committee in the discussion on the last Amendment, both by the hon. Member for Grimsby (Mr. Crosland) and my hon. and learned Friend the Solicitor-General. My hon. and learned Friend said, for instance, that when the Inland Revenue authorities were being armed with new powers it was only right that the taxpayer should have full and adequate protection, and it would be recognised that the reason why my right hon. Friend the Chancellor of the Exchequer has decided, rightly, that in the circumstances of this Clause there should be this additional instance of appeal is that in the Clause, however much we improve subsection (1), we shall still be placing upon the taxpayer whom we wish not to be caught a difficult and unusual onus.
It is in recognition of the fact—and of the peculiar character which will still remain in much of this Clause—that these special tribunals have been devised and provided in the Clause. It is here—and I do not think that this can be disputed—as a protection to the taxpayer. If that is so, it is unreasonable, I submit, that it should be available to the Inland Revenue to have another go, that the Revenue should equally institute another hoop through which it can put the taxpayer who has succeeded in satisfying the Special Commissioners that he does not fall within the mischief of the Clause.
In saying that, and in drawing attention to the additional expenses, anxiety and delay which would be involved in such a case, I am not at all suggesting that the Inland Revenue would use vindictively the right and the power it has at the moment in this Clause. On the contrary, I say that if it has this right and power, it will be its duty to use it if it thinks there is the slightest likelihood of its succeeding in a further appeal on fact.
What we shall have succeeded in doing is not merely—or, perhaps, mainly—giving the taxpayer in this new and peculiar circumstance an additional safeguard; we shall have placed him at an additional risk and drawn out the proceedings to which he may be subjected if he disagrees with the original notice of the Commissioners.
I believe, therefore, that it is alone consistent with the Chancellor's intention in devising and inserting this tribunal, and that it is alone logical, that the appeal to the tribunal should lie open to the taxpayer if he is dissatisfied with the determination of the Special Commissioners, but that the right to appeal on this second instance of fact should be withdrawn from the Commissioners of Inland Revenue.
I am sorry to disappoint my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), but I must advise the Committee not to accept this Amendment. He began his speech by saying that one might think it was fair and logical that there should be an equal right of appeal available to the Inland Revenue from a decision of the Special Commissioners. I agree, but. I think he went on to argue on a wrong basis in saying that the right of appeal from the Special Commissioners should be confined to the taxpayer.
I ask the Committee to bear in mind what the position is. First of all, if the Inland Revenue thinks that a transaction comes within the terms of subsections (1) and (2) of this Clause, it gives notice to the taxpayer. If he thinks it has acted wrongly, he has the opportunity of getting a clearance, and from that clearance there is no appeal.
If he does not take that step, presumably he is prepared to admit that, at least on the facts known to the Inland Revenue, which will come before the tribunal, there is a prima facie case. So we get to the stage when there is an appeal to the Commissioners. It is to be presumed that in the majority of cases in which that occurs there will at least be a prima facie case of tax avoidance which everybody, on both sides of the Committee, has said must be stopped. Many things may happen before the Commissioners. Some new evidence may be put forward by the Revenue which takes the taxpayer's advocates by surprise. They may think that that accounts for the decision of the Special Commissioners in favour of the Revenue. They may think they can find a good answer to it if they can only get a rehearing. They can get a rehearing by way of the tribunal presided over by the Chairman of the Board of Referees, with two people of business experience to assist him.
Suppose the converse were the case and the Revenue was taken by surprise by a new slant of evidence. They may think that the Special Commissioners had gone wrong entirely and they may want a rehearing. This would not just be because they think there is the slightest likelihood of the appeal succeeding. That is not the test. My hon. Friend said it would be the duty of the Revenue always to appeal to the special tribunal if it thought there was the slightest likelihood of succeeding on appeal. I do not think that is an accurate statement of the duty which would be laid upon the Revenue. I am quite certain it would not appeal unless it thought it had a real chance of succeeding on that appeal and that it was right that it should succeed on that appeal for the purpose of nullifying a tax advantage arising out of dividend stripping, bond washing or one of these similar transactions.
I cannot think there is anything wrong in letting the Revenue appeal to the tribunal. I should point out to my hon. Friend, although I am sure he is aware of it, that here we know there are large amounts of tax which may be involved, and we know that the taxpayer will be aided, if he is fighting the case, by the very best legal advice available to him. I do not think that in this category of case it can be said to be an undue hardship that he might run the risk, where it appears that the Special Commissioners have gone wrong, of a rehearing before the new tribunal at the instance of the Revenue. I think it is essential because, if we do not give this right, I can see difficulties arising. There may be a case where a taxpayer wants to appeal from one finding of the Special Commissioners and the Revenue would like to put in a cross-appeal against other findings in the same case. If we give the Revenue no right of appeal we prevent that happening.
I hope that my hon. Friend will not think that I have not given very serious consideration to this; I have, hut, bearing in mind that there is this provision for clearance right at the outset on the ground that there is no prima facie case—and from that clearance, once obtained, there is no appeal, so that the taxpayer is not in peril—it is right to retain this provision as it is.
I am sure the Attorney-General is right in this matter. Let us have adequate safeguards for the taxpayer, by all means, but not have the dice loaded against those who are acting in the interests of taxpayers generally. We must not lose sight of the fact that this is a difference between the tax avoider and the tax-paying public. While we want to safeguard the interests of the individual person who may be involved in these proceedings, we must not lose sight of the general public interest. The inference to be drawn, I think, from the remarks of the hon. Member for Wolverhampton, South-West (Mr. Powell) was that in some way the Inland Revenue is given special powers which it can arbitrarily use and that the taxpayer should be given some preferential right of appeal in the event of his being dissatisfied with the decision of the Special Commissioners.
I would remind the Committee that it is the initial step only that rests with the Inland Revenue—the initial step of sending the taxpayer a notification; what was to have been a direction until we passed a series of Amendments substituting a notification for a direction. Let us remember, also, that the taxpayer is under no obligation to disclose voluntarily to the Inland Revenue transactions that may be caught by this Clause.
Clause 27 certainly gives the Inland Revenue power to call for information, in the same way that Section 250 of the Income Tax Act gives the Special Commissioners power to call for information in cases that may lead to a Surtax direction, but the Committee should notice that the Inland Revenue has to ferret things out for itself, and it is only when it has done the ferreting and learned enough about the taxpayer's activities that it can send him a notification.
I think that the dice is loaded against the Inland Revenue very heavily indeed throughout the proceedings. As the Attorney-General says, if, in the first instance, the tribunal decides that there is not a prima facie case, that is a decision against the Inland Revenue against which it has no right of appeal. Thereafter, when the tribunal has decided that there is a prima facie case and the case goes to the Special Commissioners, the Inland Revenue and the taxpayer should be put on equal terms. I do not see any ground whatever for introducing inequality in the rights of appeal at that stage.
Nor do I think that we need shed any tears at the idea of some poor innocent taxpayer—it is usually a widow, of course—who will be helpless in the face of all this array of talent briefed by the Inland Revenue; bureaucracy going mad, and bullying and intimidating and browbeating the taxpayer. I believe that these people will go into the case armed with a great deal more talent and equipment than is usually at the disposal of the Inland Revenue.
Let us be realistic about this. We are dealing as to 99 per cent. with scrimshankers, with unscrupulous people. All we have to do is to safeguard the innocent case. What the hon. Member for Wolverhampton, South-West appears to want to do is to carry his devotion to puritan constitutional doctrine to the point of frustrating the whole purpose of the Clause.
The hon. Member for Sowerby (Mr. Houghton) was in boisterous mood yesterday and he is boisterous again today, with his talk of the dice being loaded against the Inland Revenue. What he was inclined to overlook, and what, with respect, my right hon. and learned Friend the Attorney-General was inclined to overlook, is that Clause 26 introduces an entirely new principle into our Income Tax practice. In previous years we have had general taxing provision in the way of Profits Tax; we have never before had general taxing provision in respect of Income Tax. Clause 26 does just that. It introduces an entirely new dice for the Inland Revenue to throw—not for the taxpayer to throw—and it seems entirely wrong that the taxpayer should not be adequately safeguarded.
My right hon. and learned Friend said that he had given full consideration to the argument of my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). He may have done so, but I must say that he has come to the wrong conclusion. He said there would be a prima facie case of tax avoidance before the case went to the Special Commissioners. That is perfectly true, and I must say that I think that the Special Commissioners, an expert and specially-selected body of men, are singularly well qualified to decide whether or not there is a tax avoidance or not.
This is a general taxing provision, and the whole idea of a general taxing provision is distasteful to those on this side of the Committee. I say again that it is new to us. It is abhorrent to us. I understand and appreciate that this has been forced upon this country by the unfortunate practices of a small number. Therefore, in principle I accept it, but that does not mean that I do not accept it with regret.
The Profits Tax provision was not introduced by a Conservative Government. It is perhaps a matter for reproach that in 8½ years Conservative Chancellors have not written it out of the Statute Book. We inherited it from a body of persons who, in spite of their talk about the brotherhood of man, are so suspicious about their fellow men—
I am not aware of what the right hon. Gentleman is referring to. If he will give me chapter and verse when he intervenes in the debate later, I shall be interested to hear what he has to say. But that does not alter the general truth of what I have said.
It is wrong to give the Inland Revenue two barrels to its gun. One barrel is quite sufficient. We had discussions on earlier Amendments on the question of the onus of proof on the taxpayer when there is a question of intent, the taxpayer being deemed to be guilty of evil intent until he proves himself innocent. One crack by the Inland Revenue should be sufficient. The Special Commissioners are experts, and if they decide that the taxpayer is not guilty of the kind of tax avoidance that we want to stop, I can see no reason why the Inland Revenue should be entitled to pull a second trigger. The tribunal exists for the protection of the taxpayer and not of the Inland Revenue. I hope that my right hon. and learned Friend will give further consideration to the remarks of my hon. and learned Friend the Member for Wolverhampton, South-West, and if he does so I believe he will come to a different conclusion.
I could not follow my right hon. and learned Friend's argument about the Commissioners of Inland Revenue being presented with some surprise by the taxpayer's advisers. Surely the position at the moment is that if the Commissioners of Inland Revenue at the hearing of a case before the Special Commissioners are surprised by some facts which are produced, they have no right of appeal on the point of fact. Nor has the taxpayer at present any right of appeal.
I had understood that this tribunal was introduced merely because in the earlier subsections of this Clause the Commissioners are given such a wide discretion to decide what are the objects behind the transaction which they are challenging. The tribunal was instituted for that purpose and that purpose alone, and not to give the Commissioners of Inland Revenue another stage at which to try out their decision to pick on certain objects as main objects of the transaction.
There is no doubt that under subsection (2) the dice are loaded against the taxpayer. They are not loaded in any way against the Commissioners. The Commissioners are given their choice to say first what are the main objects of the transaction. The dice are loaded against the taxpayer in that he is asked to prove a negative intention not only of himself but of somebody else in the transaction.
One cannot assume that every person who comes before the Special Commissioners on a hearing of this kind is some wealthy scrimshanker, or whatever was the name used by the hon. Member for Sowerby (Mr. Houghton). When a case of this sort reaches the Special Commissioners, there must be some reasonable dispute on the facts. As my right hon. and learned Friend said, it starts with the Commissioners using their discretion in giving a notice. The notice is disputed, and, as a result, the matter comes before the Special Commissioners. One cannot assume that every single person coming in that way before the Special Commissioners will be very wealthy, a scallywag, to use another word which I presume has a meaning much the same as scrimshanker—someone without morals at all but a lot of money. Quite properly, these cases may be brought before the Special Commissioners by ordinary taxpayers. A special tribunal has been provided for here.
The hon. Member says "Really, really", and tut-tuts while keeping his seat, but he himself may find it necessary, on a case like this, to come before the Special Commissioners. Any hon. Member of the Committee may. It is not restricted to people with incomes of over £100,000 a year who are trying to swindle the Revenue. It applies to an ordinary reasonable case where there is a dispute between the Commissioners and the taxpayer. That dispute arises because the Commissioners have a special discretion under one of the subsections. I think it right and proper for the taxpayer to have this remedy but not for the Commissioners.
I rise merely to suggest that we should put this matter back in perspective and give it some relationship with reality. The hon. Member for Crosby (Mr. Graham Page) speaks as though what we are discussing here is the general question of the Revenue, on the one hand, and the great mass of ordinary British taxpayers, on the other. Of course, we are discussing nothing of the kind. We are discussing the relationship between a tribunal and the sort of people who would be likely to be affected by the operation of Clause 26. These simply are not ordinary taxpayers. They are not constituents of the hon. Member for Crosby, they are not my constituents or anyone else's constituents—[Interruption.] They may be the hon. Gentleman's; I do not know.
We are discussing the possible operations of a very small group of people who must be characterised by one or other of two things. First of all, they must, in any event, have access to sums of capital sufficient to make these various devices possible for them. Secondly, they may or may not be potential tax avoiders. No one will be affected by the Clause, by the tribunal or by the appeal procedure in the slightest degree who has not access in some way or other to very substantial sums of capital. [HON. MEMBERS: "Nonsense."] That is true of this Clause and it is true of most of the other Clauses. If hon. Members think that some small saver with National Savings totalling £50 or £70 is likely to be liable to be caught up in this new procedure under Clause 26, they are living in a completely remote world.
The number of people who can possibly be affected will be extremely small. I repeat—I am sorry that some people seem to disagree—that they must have acess in one way or another to considerable sums of capital in order to be affected. Any suggestion that we are discussing under this Clause the relationship between the tribunal and the Revenue, on the one hand, and the great mass of our tax-paying constituents, on the other, is utterly remote from the real world.
Like all my hon. Friends who have spoken so far, I find myself quite unconvinced by the arguments of the Attorney-General. What the hon. Member for Grimsby (Mr. Crosland) said seemed to me to be one of the best pieces of prejudgment on a case which could ever have been made in this Committee. The fact that in the great majority of cases what the hon. Member says may be true—that they are nearly all potential tax avoiders—does not alter the fact that in this Committee we are looking after all sections of the community and not merely 95 per cent. of them.
The hon. Member's last remarks make his position even worse, because it is not yet necessarily offensive in this country for people to have access to considerable sums of capital. The hon. Member for Sowerby (Mr. Houghton) too, said—I noted his words—that we were discussing a contest between tax avoiders and the Revenue, so he, apparently, was prejudging that in this case it must always be a contest between tax avoiders and the Revenue. That is what we on this side do not accept.
I should like my right hon. and learned Friend the Attorney-General, when he says, I hope, a few more words on the matter, to consider the problem in the context in which the whole provision of a special tribunal was included. It was put in because under the Clause we are having a complete departure from our normal tax conventions. I am one of those who do not oppose it, because I believe that there have been sufficient abuses to justify fully the introduction of rather extraordinary methods. There is no one in this Committee who does not accept that the reason why this provision for a special tribunal was put in was not because of concern with the difficulties of the Inland Revenue, but because we were having a departure from our normal traditional fiscal rules and we felt that in those circumstances special measures were necessary to protect the taxpayer.
If we are to have a special tribunal for the reason I have outlined, it is odd that in the same breath we should say that a provision which we put in to protect, to safeguard the taxpayer because of a completely novel departure from our normal fiscal conventions should be extended in a way that could cause considerable expense and trouble to taxpayers as a whole when, I repeat, we are discussing generally a provision to provide a protection for the taxpayer because of a departure from our normal methods in these cases.
My hon. Friend the Member for Torquay (Mr. F. M. Bennett) kept using the phrase "protecting the taxpayer". I ask him to believe that that is not the right approach. It is not the case that the Revenue is engaged in a perpetual hunt of the taxpayer or that there is a special need to protect the taxpayer.
I do not use the phrase "protecting the taxpayer" in this connection and I will explain why. There is no need, however, for us to get excited or in the least heated about it. I want to put the retention of this provision on serious grounds, for this reason. None of us wants to see any body of taxpayers brought within the scope of the Clause unless their conduct justifies the tax advantages that they would otherwise obtain being nullified. On the other hand, all of us, on both sides, are equally determined that there should be brought within the Clause those who are guilty of that conduct. The only question we are considering here is the machinery for determining whether someone has, rightly or wrongly, been brought, or attempted to be brought, within the provisions of the Clause.
In that connection, it is significant that we have given, and rightly, the opportunity to the taxpayer to go straightaway to the tribunal and say, "The Revenue is quite wrong. My conduct does not bring me anywhere near the terms of the Clause. I want a certificate of clearance." He can get it if he is right, and from that there is no appeal.
If the taxpayer does not take that step, and the Revenue thinks that the case warrants being brought within the Clause and he does not agree, he can appeal to the Special Commissioners. It is his appeal, and it is wrong for my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) to talk about the Revenue having two barrels, the Special Commissioners and the tribunal. The case goes to the Special Commissioners at the instance of the taxpayer.
What happens then? I sometimes see the results of decisions of Special Commissioners and sometimes I have been surprised by their conclusions. Perhaps a conclusion has been reached because a new piece of evidence has come in which has taken the other side by surprise, and here it is not a matter of having all the pleadings and discoveries as in an ordinary case. But when one has got to that stage before the Special Commissioners, the taxpayer should have the right to say "I have been taken by surprise by the Revenue. I can tell the Board of Referees that the Special Commissioners are wrong". If that is right, then it is equally right that the Revenue, acting in its public duty, should have the right to go to the tribunal and say that the Special Commissioners have been wrong; that they have not paid sufficient attention to the arguments, and have reached a wrong conclusion.
Unless there is this right of appeal, at times, somebody will be let out in a matter involving a great deal of tax. This is a point which may not appeal over much to some of my hon. Friends, but there is a lot of substance in this argument. If the Revenue does not have the right of appeal, and there is an appeal by the taxpayer from some decision, then there would be no right of a cross-appeal in the same case. I think it must be agreed that that would cause very considerable difficulty, and perhaps some injustice. But we shall have a further opportunity to consider this Clause.
I must, however, say now that it is a misuse of language to describe the Clause as a general taxing provision, or to suggest that under subsection (1) there exists a wide executive power given to the Revenue. We have done our best to make the Clause conform to the ordinary requirements of precision, and I think it is analogous to the criminal law where, for example, it is an offence to commit robbery with violence. There we define the offence, but have not written into the Statute a list of the instruments with which the offence can be committed. Here we have not sought to define the particular instruments which may be used by individual taxpayers to achieve their end.
I do not think that the Clause raises any important point of principle, but I do think that there should be a right of further appeal by both sides to the Commissioners.