§ 5.3 p.m.
§ Sir JOHN WITHERS
I beg to move, in page 11, line 24, after "resident," to insert "and domiciled."
The object of this Clause, as I understand it, is to prevent people resident in England transferring assets abroad for the purpose of avoiding taxation. I think that the whole of the Committee will agree that this is a form of evasion which ought not to be supported by this House, but I wish to draw attention to a class of persons in respect of whom, possibly, it might be a hardship. It arises in this way. A number of foreigners come to live in England. For example, a considerable number of Americans come to live here, and are ordinarily resident here. They do not bring over their property to England. Their family connections, their assets, money and everything else are in America, but their income is spent here, and they have to pay tax on the amounts that are remitted to them. The result of the Clause in its present form would be that those people, if they have rearranged their affairs in America in a way which involved a "transfer of assets" they would have to pay tax in the future. If they made no transfer of assets from here, even their assets in America would come within this Clause, and they would be taxed under both the American and the English laws. It would be impossible for them to pay two lots of taxation, because taxation is so heavy in both countries, and they would have to clear out, or become domiciled here.
§ Mr. BENSON
Would it not be necessary for an American to have transferred assets, a transfer from a person owning them in this country to a person outside this country—a mere transfer from somebody outside the country to another person?
§ Sir J. WITHERS
That effect is exactly what we want to prevent. My point is that the Clause as it stands would have that effect. I have tried to remedy it by saying that a resident in England shall be taxed if he is permanently domiciled here, that is to say, if he is not going back to America at all. An ordinary resident is understood to be a person in the ordinary acceptation of the word, but the domicile of a man is his country of origin, which is called his domicile of origin. He retains that domicile for ever, unless he gets a domicile of choice, but he can only get a domicile of choice by taking up a permanent residence in another country and making it his home and deciding that he will never return to his domicile of origin. He gives up his aminus revertendi.
§ Sir J. WITHERS
He will not return to live there permanently. The addition of the words "and domiciled" is to prevent the ordinary foreigner resident in England from coming within the hardship which the hon. Member opposite has pointed out, and confining it to the case where foreigners make England their permanent home, and do not propose ever to leave it, and to all intents and purposes become English people. That is the object of the Amendment.
§ 5.9 p.m.
I support the Amendment for the reasons given by my hon. 673 Friend the Member for Cambridge University (Sir J. Withers). I think that hon. Members are all of the same opinion in wanting to do away with the possibility of persons resident here escaping Income Tax by transferring assets to foreign countries. That is what is done at the present time, and we all want to stop it. But there are a few cases where hardship will be caused unless the restrictions are limited in the way suggested by my hon. Friend in his Amendment. An American living in this country, as long as he has a domicile of origin in the United States, will pay the Income Tax and Sur-tax of that country. If he has to pay the Income Tax and Sur-tax of that country, and the Income Tax and Sur-tax of Great Britain as well, all his income will be gone and he will have to go. The people who come to reside here spend their money here and pay tax on what they spend, and the State ought not to discourage their coming. This is not the case of a man who has come here, and has then transferred his assets to avoid Income Tax. The case I have in mind is that of the man who made arrangements about his investments quite innocently and then came to reside in this country. The effect of the Clause will be to treat that arrangement as a transfer of assets, and I do not believe that the Treasury intend that to be so. I do not suppose that it is likely to affect a, large class of people, but it will be a very real hardship upon people who are not responsible for the mischief at which the Clause aims. It aims at the avoidance of the payment of Income Tax by a person resident here who transfers his assets to a foreign country for the express purpose of escaping taxation.
§ 5.11 p.m.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. W. S. Morrison)
The Amendment which has been moved by the hon. Member for Cambridge University (Sir J. Withers), and supported by the right hon. and gallant Member for Ripon (Major Hills), is one I cannot accept, and I think when I have explained the reasons, they will be quite content. The Clause which we are now discussing does not, as far as we can make out, effect the mischief which they pointed out. I want to make it clear that, with regard to what the right hon. and gallant Member for Ripon said, I am not going into the 674 whole question of double taxation, which is a very much larger question than anything involved in this Clause. The Clause is directed to the prevention of one form of Income Tax and Sur-tax evasion. Therefore, it has a limited object and is directed, as is all Income Tax legislation, to individuals who are ordinarily resident in this country.
The effect of the Amendment would be to exclude from the provisions of the Clause a foreigner even if he were ordinarily resident in this country, and the question before the Committee is, when they consider the limited object of the Clause, whether they wish a foreigner ordinarily resident in this country not to have this Clause for the prevention of tax evasion directed against him. I think that when the Committee reflect upon the matter, the answer to the question will be obvious. Take the case of foreigners ordinarily resident in this country. They enjoy all the amenities of this country, are defended by its defence forces, enjoy the benefits of its system of law and order, and the harmony which prevails among its citizens. In three cases, which I could describe, by means of exactly the same sort of tax dodging device which we are trying to stop by this Clause, foreigners get away with Surtax amounting to £93,000 a year. What reason is there for a foreigner ordinarily resident in this country receiving better treatment from that point of view than our own nationals?
There is another point I wish to emphasise. The cases which have moved to compassion the hon. Gentleman the Mover and the right hon. and gallant Gentleman the supporter of the Amendment are not, as I apprehend the matter, affected by the objects of the Clause. The right hon. and gallant Gentleman the Member for Ripon drew attention to a case which he put before the Committee in the disguise of a foreigner who had innocently made this kind of transfer and arrangement, and then came to live in this country. Clearly, if the right hon. and gallant Gentleman has regard to the proviso of the first Sub-section of the Clause, such a case would be left out of the Clause altogether. Such a man would clearly be able to show to the satisfaction of the taxing authorities that the transfer and the associated operations were effected mainly for some purpose other than the avoidance of taxa- 675 tion. There can be no question in such a case that such a man had entered into the arrangement not with the object of avoiding British Income Tax, because, exhypothesi, it was a matter of no concern to him when he made the arrangement. In general, when you are dealing with the case of foreigners who are ordinarily resident in this country, their trust dispositions, because of their foreign connections, have about them a quality which is quite distinct from the artificial arrangements which are being struck at by this Clause, and in general there will be some other purpose for the creation of these trusts which is not merely the avoidance of British Income Tax and Super-tax. For that reason, I would suggest that there is no danger that an innocent foreigner will be struck at by the Clause, and that it would be restricting our efforts to stop this form of evasion if we extended this particular provision to our own nationals and not to foreigners.
§ 5.16 p.m.
§ Mr. M. BEAUMONT
The Financial Secretary has made an important statement from the point of view of many of us. Perhaps he will forgive me if I address to him a question on his statement which may have the effect of shortening the discussion at a later stage. He has drawn attention to the proviso with reference to foreigners and has pointed out that in such a case as the right hon. and gallant Member for Ripon (Major Hills) mentioned it could be clearly shown that it was done for the purpose other than the avoidance of taxation in this country.
§ Mr. BEAUMONT
May I put this further question? What happens in the case of those of us—I may tell the Committee quite frankly that I am personally interested in this matter, and it is well that I should say so—whether they be foreigners or British subjects, who have inherited money or have had moneys transferred to them under irrevocable trusts? That is to say, the money was transferred or settled years ago, the parties who made the trusts are dead—heaven knows what their object may have been—and it is impossible for the present holders of these assets to alter the dispositions, however much they may wish 676 to do. Would they or would they not be covered by the proviso, whether they be British subjects or foreigners?
§ Mr. MORRISON
That is a different question and one would need to have all the facts of such a case clearly in mind before giving a definite answer. I apprehend from what my hon. Friend has said that in such a case as he has described this Clause would not apply, because it would be clearly an easy matter to make it plain that the transfer was not made for the purpose of avoiding taxation here. If the hon. Member looks at the scheme of the Clause he will see that it is not only necessary that there should have been a transfer but that the individual who is to be charged shall have made the transfer and shall have acquired rights to enjoy the income. I should imagine that the cases the hon. Member has in mind would on that account be excluded from the operation of this Clause.
§ 5.19 p.m.
§ Sir J. WITHERS
Suppose there is an American who resides here but whose property is all in America and he has two or three daughters and wishes to make a marriage settlement on them. Can he transfer funds and make trusts in favour of those daughters and denude himself of that property, and has he to go on every occasion to the commissioners and say that these transfers are not for the purpose of avoiding the liability to taxation in this country? If so, it seems to me to be a great hardship.
§ 5.20 p.m.
I am not satisfied that the Sub-section at the top of page 12 carries the full effect of the Financial Secretary's statement. Let the Committee note that, contrary to the usual practice of the taxing authority, the onus is here laid on the taxpayer to prove that he is not liable. That is an innovation which I confess I do not like.
§ The TEMPORARY CHAIRMAN (Colonel Sir Charles MacAndrew)
The right hon. and gallant Gentleman cannot deal with that point now.
I want to answer the Financial Secretary to the Treasury. I agree that many difficulties would be transactions which may have taken place created in having to prove that some 677 years before or a short time before were or were not made with the object of avoiding Income Tax. That would mean proving the negative, and I believe that it would be so difficult that we should hit the people whom the Financial Secretary does not mean to hit. It would include people he does not want to penalise. We cannot leave out the question of double taxation. I do not want to discuss that point now, but it does come in here. If the taxpayer is domiciled abroad but resident here the country of domicile will not let him off his taxation because he is resident in a foreign country. That is the person we have to bear in mind—the person who pays double taxation. He cannot escape on the ground that the investment in foreign securities was not made with the object of avoiding Income Tax, unless he is put to a very difficult proof. That means a new principle of taxation law and one which ought not to be carried so far. If the State wants to tax an individual the State ought to have the burden of proving that the individual is liable to taxation.
§ Amendment negatived.
§ 5.24 p.m.
§ Mr. FOOT
I beg to move, in page 11, line 35, after "income," to insert:(arising by way of interest or dividend from the assets transferred or any assets representing whether directly or indirectly any of the assets transferred or representing whether directly or indirectly the accumulations of the income arising from such assets).This is a very simple Amendment, designed to put an extra definition into the wording of the Clause. It is clear that the Clause as a whole is designed to catch for Income Tax purposes income arising out of assets transferred, whether it arises directly or indirectly. The only purpose of the Amendment is to make that perfectly clear. There has been a certain method adopted in the drafting of the Clause. It says:Where such an individual has by means of any such transfer, either alone or in conjunction with associated operations, acquired any rights …Sub-section (2) then says:For the purposes of this section an associated operation means, in relation to any transfer, an operation of any kind effected by any person in relation to any of the assets transferred or any assets representing, whether directly or indirectly, 678 any of the assets transferred, or to the income arising from any such assets, or to any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets.I would draw attention to the words "by any person." Suppose the transactions in question are carried out not by a person but a, company. The company may be selling and buying securities. Then the income of the company would be the profits or the loss on those dealings. It might be said that those dealings by the company abroad would not be an associated operation within the meaning of this Clause. I may be wrong, and if so no doubt the Financial Secretary or the Attorney-General will correct me, but it seems to me that there may be a loophole in the Clause as drafted, and it is in order to try and stop up that loophole that we have put down the Amendment.
§ 5.27 p.m.
§ Mr. W. S. MORRISON
I am much obliged to the hon. Member for his assistance. In this very complicated and difficult matter we cannot have too much assistance. It is his evident desire to stop up a loophole but, such is the complexity of this form of legislation, if he reconsiders the matter he will find that he would create one by the Amendment. It is for that reason that I would ask the Committee to prefer the drafting of the words in the Clause. This Clause is concerned with cases where an individual has by the transfer of assets abroad acquired rights which enable him to enjoy the income of a company. I would draw the attention of the Committee to the fact that the words in Sub-section (1) are "any income". The hon. Member proposes that this provision should be restricted to cases where an individual has power to enjoy such income as arises by way of interest or dividends from the transferred assets.
It would be perfectly easy to ensure by a chain of associated operations that the income did not inure in either of those two forms but in the way of annual payments or income of some other category. If we accepted the Amendment the tax evasion expert would see to it that the final payment to the company would be made in some other form. There is no necessity for the Amendment. If the whole Clause is considered carefully the hon. Member will see that the power of 679 enjoyment is linked up with the rights which the individual has acquired throughout the Clause. Those rights are linked up again with the actual transfer operations, so that you get the power of enjoyment of income completely linked up. That is what the hon. Member is anxious to establish by his Amendment. If he will accept my assurance I would ask him to agree with me that the Amendment would restrict the power of the Clause to deal with this form of evasion.
§ Amendment, by leave, withdrawn.
§ 5.30 p.m.
§ Mr. FOOT
I beg to move, in page 11, line 36, to leave out "were" and to insert "had been."
In this Amendment, and also the next three, my hon. Friends and I are endeavouring to get a clear expression of what we believe to be the intention of the Clause. The purpose of the Clause, as I understand, is that the income which the person concerned enjoys, that is the person in this country, as income which would be chargeable to tax in the United Kingdom, should be chargeable to tax in the same way as if it were actually his income. I am still a little doubtful as to whether that purpose is carried out by the words of the Clause. In Sub-section (1) we have the words:Would be chargeable to Income Tax by deduction or otherwise.I suggest that that phrase may be ambiguous. It might be assumed that the income of a foreigner would be chargeable to British Income Tax if it were the income of a British subject. In my submission that is not necessarily the case. Let me give an example. Under the present Income Tax law a British subject would not be liable to tax on deposit interest payable by a bank abroad unless and until that interest is brought into this country. There you have a loophole, it may be a small one, but that is no reason why we should not endeavour to stop it. That is the purpose I have in trying to redraft the Clause.
§ 5.32 p.m.
§ Sir JOHN WARDLAW-MILNE
I understand, Mr. Chairman, that it is not 680 your intention to call the Amendment in my name to leave out the words:whether it would or would not have been chargeable to Income Tax apart from the provisions of this Section,as it is covered by the Amendment of the hon. Member for Dundee (Mr. Foot). My object in putting down my Amendment was to cover any possible ambiguity and at the same time to get an explanation of why these words are included. I suggest that they do not add anything to the clarity of the Clause. Indeed, it seems to me that there is a better chance of dealing with evasions if the words are left out. I shall be glad to know why these words are put in and in what direction they extend the scope of the Clause?
§ 5.33 p.m.
§ The ATTORNEY-GENERAL (Sir Donald Somervell)
In dealing with these matters one hopes to understand the points put and also that one will be able to make them intelligible. The hon. Member for Dundee (Mr. Foot) is anxious to stop a loophole and took the case of deposit interest in foreign countries which would not be taxable unless it was received in this country. The hon. Member for Kidderminster (Sir J. Wardlaw-Milne) has asked for an explanation of particular words in the Clause. The hon. Member for Dundee will see in Sub-section (1) the words:which if it were income of that individual received by him in the United Kingdom would be chargeable to Income Tax.These words are the result of a recent decision in the House of Lords, which said that the word "income" in a Section of an earlier Act must be construed as meaning income taxable under the Income Tax Acts. It is the object of the Clause that it should apply to all cases. The point is whether the income, if it came over here and was received by a resident here, would be liable to Income Tax. If it would, then prima facie the Clause applies, unless the individual can show that the arrangement has been effected for some purpose other than that of avoiding Income Tax. The words,whether it would or would not have been chargeable to Income Tax apart from the provisions of this Section,are directed to the same point. That is to say, we get within the Clause all incomes, including that from foreign pos- 681 sessions. But in case that statement should be unduly alarming let me say at once that if some doubt arises as to whether they are foreign possessions of the kind on which no Income Tax is payable, unless the proceeds a-re remitted here, and they are not remitted, then, of course, it could not be suggested that the individual is dealing with these assets for the purpose of tax evasion because he would not have been assessed to Income Tax on the income of the possessions. I think that makes the matter reasonably clear, or at least as clear as the subject-matter allows. The wording of the Clause has been carefully chosen and is designed to keep out transactions which really do not affect the person's income which is liable to tax as far as foreign possessions are concerned, but to bring in all transactions.
§ Amendment negatived.
§ 5.39 p.m.
§ Mr. BENSON
I beg to move, in page 12, to leave out lines 1 to 5.
It seems to me that the main object of the Clause is to deal with all the income which a person has the power of enjoying irrespective of whether he is actuated by good or bad motives as to the way he invests his capital. It seems to me that the question of enjoyment should be the criterion. During the discussion on the previous Amendments nothing has been said which provides an adequate reason for withdrawing this Amendment. The hon. Member for Aylesbury (Mr. M. Beaumont) raised the point that in past years certain arrangements had been entered into which but for these lines in the Bill would come within the ambit of the Clause, and the Financial Secretary gave a definite ruling that the particular case mentioned by the hon. Member would be excluded by these lines. But it must be noted that the hon. Member for Aylesbury was an interested person. He apparently enjoys the income. Why should he be allowed to evade a tax on income which he enjoys merely because of some peculiar arrangement in the investment of the money by the original testator.
Take the position of a foreigner in this country. I understand that a foreigner who is merely a temporary resident here would never come within the Clause, but if a foreigner is more or less making this 682 country his permanent home then he should not be treated differently from any Englishman so far as taxation is concerned. He has the power of enjoying the income whether it is received from arrangements made prior to his entry into this country. It is this power of enjoyment which ought to be taxed. Suppose by some fortunate circumstance I became possessed of the wallet of the Financial Secretary, which I am sure is packed with £ notes. I am sure that he would ask for their return, although my object in keeping them might be a very good one. He would not give roe the solid advantage of having a good motive, which he proposes to give to the investor. The Attorney-General has said that certain interest from foreign securities which is not brought into this country, but which the individual still has the power of enjoying, would not come within the Clause because the arrangement is such that it has been entered into prior to the necessity for making any arrangements for the evasion of taxation.
§ The ATTORNEY-GENERAL
I said that under our existing Income Tax laws income from foreign possessions and securities is not taxed at all unless it comes into this country.
§ Mr. BENSON
The only reply I can make is that it ought to be, and if the elimination of these lines will bring that about it is a strong argument in favour of the Amendment. Now I come to the extraordinary word "mainly." Apparently income which arises out of certain arrangements which have been entered into partly for the avoidance of tax is to be granted a remission of taxation. If instead of "mainly" the proviso contained the word "solely" or "completely," there might be some argument for it, but the word "mainly" definitely permits a certain avoidance of tax which I think condemns the proviso. Unless a much stronger argument and a much more cogent case are made for this exception to the Clause than has been made on previous Amendments, we on this side will press the Amendment to a Division.
§ 5.46 p.m.
§ Mr. E. J. WILLIAMS
I should be glad if the Financial Secretary would explain what is the test to be applied in order to find out whether a certain person is avoiding the payment of tax and 683 whether that test is to be of a retrospective nature. Are we to understand that what may have been done by a certain person in the past will not be considered? An hon. Member on the opposite benches, who said he was personally involved, referred to this Sub-section, and it would seem that he obtained the utmost satisfaction from the Financial Secretary. We are anxious to find out how the hon. Member can hope to have the utmost satisfaction in this respect without the application of a test of some sort. It would seem to me that persons who have foreign securities or investments abroad have them ostensibly for the purpose of avoiding the payment of Income Tax in this country, and it is not fair to Income Tax payers in this country that persons who receive income from any source abroad should avoid bearing a burden which ought legitimately to fall upon their shoulders.
§ 5.48 p.m.
§ Mr. RADFORD
Before the Financial Secretary replies, I would like to put a question to him. Are we to take it that the meaning of the Clause is that it is only the individual who makes the transfer of the assets to whom the provisions of the Clause will apply? When the Bill becomes law and an individual makes a transfer of assets for the purpose of evading taxation and allows the income or the benefits to which he is entitled to accumulate, he thereupon becomes liable to the tax as though he had been receiving the income. In the event of his dying six months hence, his heirs may claim the money accumulated, and all that money which he has accumulated escapes Income Tax. If the Clause applies only to the individual who has made the transfer, there is a very big loophole in it, and it will mean that the provisions can be applied only in a transitory way to individuals as long as they live. I think it is undoubtedly the intention of the Government that the Clause should not only apply to the man who makes the transfer, but to his heirs. I should be glad if my hon. Friend would give some assurance on that point.
§ 5.51 p.m.
§ Mr. ALBERY
This Amendment raises a very important point. I would like to ask the Attorney-General whether he 684 knows of any other instance in which taxation is levied not merely in accordance with the laws on taxation, but with regard to the intention of a person who has carried through some transaction. This appears to me to be an entirely novel procedure. This is perhaps all the more important because the word "evasion" is constantly being used very loosely. I have no desire in any way to assist evasion and I have every sympathy with the Clauses in the Bill which seek to prevent it, but we have been told over and over again that the taxpayer is entitled to pay as little tax as he is compelled to pay by law. He has the right to study the law and to arrange his business or his liability for taxation in such a manner that he will be liable for as little taxation as possible. We now have introduced in this Bill a Clause which makes the amount of money which he is liable to pay dependent upon whether he has sought to evade taxation. If we are to do that, it seems to me that the whole system must be revised and that we must say that the moment a man seeks by any Bans to pay less tax than the Income Tax Commissioner may be able to assess for him, that shall be an evasion. I do not think there is much chance of such a Clause being devised or passed, but this particular Sub-section seems to raise the whole issue. I hope the Attorney-General will tell us whether there is at present in existence any legislation by which the amount of tax which a man is liable to pay can be varied on account of his intention.
§ 5.53 p.m.
§ Mr. W. S. MORRISON
The hon. Member who moved the Amendment was, I think, to some extent still under the impression that this Clause is one which imposes taxation, and most of his speech was based upon that. He referred to the foreign trusts mentioned earlier in the Debate by my hon. Friend the Member for Aylesbury (Mr. M. Beaumont). The liability of the beneficiaries of those trusts is at present determined and measured by the Income Tax law as it stands, and this Clause does not in any way alter that assessment of liability. All the Clause does is to say that where a man in this country abuses the provisions of the existing Income Tax with regard to foreign companies and trusts for the purpose of evading the burdens 685 of that liability, he is to be made unsuccessful in his endeavour. Consequently, the first part of the speech of the hon. Member for Chesterfield (Mr. Benson) is not really justified by this Clause, which is of a very restricted nature.
What is the test which this Clause adopts in order to see whether or not exceptional measures shall be taken with regard to income? The hon. Member for Chesterfield (Mr. Benson) said that the condition that a man has power to enjoy the income should be sufficient. It might be sufficient for his system of Income Tax liability, but that is another matter. Under the Clause, for the purpose of treating a man's income in an exceptional manner, there have to be three conditions present. In the first place, there has to be a transfer of assets abroad by an individual resident in this country. Secondly, that transfer must have given rise to rights in the individual who makes it. Thirdly, the individual must have power to enjoy the income of the foreign company. It is not until these three conditions are present that the Clause comes into operation. The method which is adopted, if it does come into operation, is that the income of the foreign company or trust is treated as the income of the individual here. It is clear that that system is of an exceptional character, and it might be that if the proviso against which the hon. Member for Chesterfield protests were omitted, the system would injure legitimate trading and commercial interests. For instance, in the case of an individual in this country transferring assets to a company abroad, not for the purpose of evading taxation, but for some legitimate commercial purpose connected with trade or the financing of some interest abroad or the overcoming of currency restrictions which are now becoming such a clog in many directions in the free passage of trade, if this proviso were taken out it might mean that the individual would have added to his income for Income Tax purposes the whole profits of the company or such proportion as corresponded to the assets transferred. He would in fact be in a worse position than the man at home who would be liable only to the income distributed by the company as dividends. I suggest to the Committee that it would be a very hazardous undertaking to omit this proviso, hazardous not from the point 686 of view of the revenue but from that of industrial, commercial and trading interests of a useful and ordinary character.
The hon. Member for Gravesend (Mr. Albery) saw something so novel in this proviso as to make the Clause reprehensible. He said the whole Clause is dependent upon intention, and he asked my hon. and learned Friend the Attorney-General to deal with that particular aspect of the problem. In fact, this Clause is not based upon intention. In its positive and general sense, the Clause lays down that when the three conditions I have mentioned are present and the individual has power to enjoy the income from the foreign company, the income of that foreign company shall be treated as the individual's income. That is the positive enactment of the Clause and it is in this proviso alone that the question of intention arises. The proviso is designed to exclude from the generality of that positive enactment the possible case where a proper trading operation is involved.
The hon. Member for Ogmore (Mr. E. J. Williams) asked how this would work out in practice and how would the tribunal be able to judge the true nature of a transaction and the intent of the individual concerned? I can assure him that the great majority of these devices—I would not like to put a percentage figure on it—bear obvious signs of artificiality, which make it clear that they serve no other purpose than that of the avoidance of taxation. That is the chief answer to him. I have mentioned cases, and no doubt cases may arise, in which people enter into these transactions from innocent motives, but those who have done so will be given the right of appeal to a body which is well-designed to deal with such eases, a body with a distinguished legal chairman and the members of which are drawn from a panel of business men.
§ Mr. RADFORD
The reference here is to the Special Commissioners, who are not business men but Inland Revenue officials. If the reference were to the General Commissioners I should agree with the hon. and learned Gentleman.
§ Mr. MORRISON
The body of which I am speaking now is not the Special or the General Commissioners but the Board of Referees, to which an aggrieved 687 taxpayer, if he thinks that in regard to motive the commissioners have made a mistake, can appeal on the question of fact, and that is a body well qualified to judge the truth in such cases. The hon. Member for Rushholme (Mr. Radford) asked me a certain question. He and the hon. Member for Ogmore both asked the extent to which this provision would be retrospective. I am putting the effect of their questions in a general way. Under Sub-section (7) the provisions apply to the tax for the year 1935–36, and subsequent years—
§ Mr. MORRISON
I was not dealing at the moment with the whole question of the extent of the retrospection, and having answered the hon. Member for Ogmore I now turn to the point raised by the hon. Member for Rushholme. As I apprehend it, he was fearful lest a transaction entered into by a father might be used to penalise the child.
§ Mr. MORRISON
In this case it is not the intention of the Clause to visit the sins of the fathers upon the children. The only person whom you could get back at for Income Tax that had been evaded would be a husband or wife. That is following the precedent which is usually followed in Income Tax cases. As it is, the son would not be liable.
§ Mr. A. BEVAN
Would not the estate be liable? After all, the estate of the son would be larger in consequence of the effect of the act of the father? Would it be inequitable then to proceed against the estate of the son?
§ Mr. MORRISON
In respect of any tax that accrued during the lifetime of the father, the estate would be made an object, as such, for the recovery of the money, but the question with which I was dealing is somewhat larger. Suppose that the estate had been wound up and was in the hands of the son. I am saying that in such a case the transaction is closed and could not be followed up any further.
§ Sir ARTHUR MICHAEL SAMUEL
Are we to understand then that the heir to the legal estate of some one who had taken action which would he affected by this Clause would escape absolutely from the operations of the Clause?
§ Mr. BENSON
What does the hon. and learned Gentleman mean by "wound up"? I think that the case which the hon. Baronet the Member for Farnham (Sir A. M. Samuel) has in mind is the case of a parent who dies after having established one of these trusts. Then the whole machinery of the trust is allowed to continue without any winding up and the benefit reverts to the child. Does the child in that case, who is allowing the whole machinery to continue, avoid the taxation?
§ Mr. MORRISON
No, of course, if the sort of trust and transfer system with which we are dealing is perpetuated in the lifetime of the son, the Clause becomes operative at once on that ground. But the question which I was endeavouring to answer was this: Assuming that the father had such an arrangement and then died and his estate passed to the son, and the son had no such arrangement. In that case the Revenue could not charge.
§ Mr. RADFORD
But the son would inherit the foreign rights on his father's death and those rights would operate for the benefit of the son just as they did for the benefit of the father. Yet the son would not become liable under the provisions of the Clause.
§ Mr. MORRISON
Precisely, but if the son himself were to enter into a fresh series of transfer operations of this character, he would be liable.
§ Mr. BEVAN
If the father had been guilty of behaviour such as is referred to in this Clause, which made him liable to less Income Tax than he would otherwise have been liable for, do I understand that the son can inherit the machinery created by the father and all the benefits under that machinery, or do I understand that if he inherits the machinery and does not discontinue it, he is then liable?
§ Mr. MORRISON
Let us take this matter slowly, because there are several different points to be considered. Assume that an individual enters into a series of operations of this kind, then, in future, from this year 1935–36, such operations will be fruitless. They will not result in any evasion of taxation. Suppose that a man has entered into such a series of operations and then dies and his son inherits his estate, including all this machinery. Then, as respects any sums which by that machinery became due to the State during the lifetime of the father, the estate can be called upon to pay. But if the son steps into the shoes of the father and becomes responsible in his father's place merely for continuing the arrangement, then I apprehend the provision would not apply.
§ Mr. MORRISON
Let me make one thing clear. The person who is liable under this Clause is the person who makes the transfer and if the son did not make the transfer himself, of course he would not be liable.
§ Sir A. M. SAMUEL
Why refer all the time to father and son or to any relative? Suppose that a man enters into such arrangements as would come under this Clause and then sells his rights of ownership to a stranger and the stranger benefits in the same way as the man who transferred the rights would have benefited had he continued to possess these rights. Do I understand that in such a case the man who has bought the rights for a consideration and who then gets the benefits, which we are now trying to stop, would not be subject to the provisions of the Clause?
§ Mr. MORRISON
That is a point which is worthy of consideration and I will try to get an answer to my hon. Friend upon that matter later.
§ Mr. MORRISON
Because I was asked about the case of a father. My hon. Friend in asking me that question and in making the inference to be drawn from it, is putting me in the position of Joseph who was asked not only to declare an interpretation of the dream but the dream itself. But on, the question of the 690 sale of these assets, of course what would be sold would not be the complete scheme—
§ Mr. MORRISON
What would be sold would be the rights and the assets and all that sort of thing. I would like to consider whether there is any loophole in that respect. At the present moment I do not know, but I will look into the matter and if there is anything such as my hon. Friend apprehends. I shall try to see that legislation is introduced to deal with it. In conclusion I assure the Committee again that all the devices of this kind which I have studied bear obvious evidence of the fact that they can have no conceivable motive except that of evading taxation. This proviso is inserted for the very purpose of securing that if, by chance, we have drawn the net too widely, so as to include the innocent as well as the guilty, there shall be a way of escape for the innocent if they prove to a body of commercial men who are well versed in the rights and wrongs of commercial operations, that they have acted for some purpose other than that of evading their share of taxation.
§ 6.12 p.m.
§ Mr. PETHICK-LAWRENCE
I listened with a great deal of interest to the speech of the Financial Secretary and endeavoured to follow all the points that have been raised. I confess I am not entirely satisfied with the hon. and learned Gentleman's explanation. I am not satisfied that I completely understand the effect of this Clause, and still less the effect of the proviso, and the hon. and learned Gentleman will forgive me if I say that I am not sure whether he understands it himself or not. There are several points with which he did not seem to deal effectively. The hon. Member for Gravesend (Mr. Albery) called attention to what is, I think, a new principle. We are making the amount of the tax depend, not upon the results of a man's actions but upon the motives which have prompted his actions. That is very important. I understand it is usually said in cases of this kind that if the result of a man's action is not what you suggest but something else, then he shall escape taxation, but that is not what this proviso says. The proviso says that if these arrangements 691 have been effected "mainly for some purpose other than" avoiding taxation the sub-section shall not apply. It does not seem to me that that should be the criterion at all. I object, first of all, to the word "mainly" and I object to basing the proviso on purpose and intention. Surely it is the effect rather than the purpose which should guide us in a proposal of this kind.
With regard to the other and larger issues raised by several hon. Members, particularly by the hon. Baronet the Member for Farnham (Sir A. M. Samuel), I am not clear. Let us consider the position. A man makes a transfer for the purpose of avoiding taxation and it has the effect of avoiding taxation for the current year. After this year or next year he dies. Two questions then arise. First there is the question of the back Income Tax for the current year for which as a result of this provision he would have been liable. Of course he has not paid it, but his son or other relative or some other person comes into the estate. Surely it is clear that that person will have to pay that back Income Tax, though the hon. and learned Gentleman seemed to indicate the reverse?
§ Mr. PETHICK-LAWRENCE
I knew that that was so, but I thought that the hon. and learned Member's words might be given a different interpretation.
§ Mr. PETHICK-LAWRENCE
Then that is quite clear. The arrangement made achieves certain results in regard to his income. Someone else at his death steps into his shoes, and, as I understood the Clause originally, that person equally could not benefit by the effect of this transfer made by the original transferor. I am not quite clear, after the explanation of the hon. and learned Gentleman, whether that is so. If the person stepping into the shoes of the original transferor continues to benefit by the transfer, surely it is true that he also should not escape Income Tax thereby. Is it possible for him to make certain transfers not to benefit himself but to benefit his son or heir? 692 Does the hon. and learned Gentleman wish a man to have that power to create an improper avoidance for his heirs by making a transfer that during his own life will not allow him to escape?
With regard to this proviso, I should like the hon. and learned Gentleman to extend the promise which he made just now to the hon. Baronet the Member for Farnham that he will give these things very careful consideration. I am not at all satisfied that the proviso is correctly phrased and that it does not go too far, and I should like an assurance that he will consider this point and, either in the Debate to-day or on Report, tell us whether, after full consideration and consultation with the Attorney-General, he is satisfied that these words go only so far and not farther than is necessary to achieve the results which we all desire.
§ 6.18 p.m.
§ Sir A. M. SAMUEL
I agree in a great measure with what was said by the hon. Member for East Edinburgh (Mr. Pethick-Lawrence), and I think the Financial Secretary to the Treasury and perhaps the Attorney-General also may not have foreseen what would happen. It appears to me that under this Clause unless you have some proviso to prevent a man during his lifetime selling his rights to another party for, say, £5,000, you will have everyone selling their ownership rights to another party and every one of these cases which this Clause seeks to get at will then go on in the hands of that other person; in other words, it would be in the power of a skilful person, if I may use a colloquial expression, to knock the bottom out of the Clause. I do not know whether or not it is provided for but I do not think, from what the Financial Secretary has said—I hope I am not discourteous in saying so—that he has foreseen that this point would arise. Therefore, I hope he will postpone making any definite pronouncement here until he has talked to the Treasury draftsman and found out whether he ought not to have put something in to catch those people whom I have just described.
§ 6.20 p.m.
§ Mr. CROOM-JOHNSON
We all want to see that property which has been transferred in the way described in this 693 Clause does not escape when it gets into the hands of an individual who succeeds to the original transferor under his will. I cannot help thinking that we have omitted to have regard to one essential fact with regard to the whole matter. When the property has been transferred abroad, if it is done by the original person for the purpose of evading tax, either in connection with other associated transactions or not, we shall, I hope, satisfactorily catch him and make him responsible for Income Tax by reason of the provisions of the Clause. But assuming that he dies and that the property has been transferred abroad, and assuming that it has been left by will, I still say, merely as an example of the sort of thing that would happen, that the result would be that the property would be a foreign possession belonging to the son who had derived it under the will of the individual, and so far as that income was concerned, he would be liable to Income Tax under the existing law and would continue to be liable. But supposing he does something other than that and, having got the foreign possession, he then proposes to deal with it in order to try to make some sort of arrangement, as his father had done before him, before Clause 16 came into existence; the result would be, in my view, that Clause 16, in the way that it is now drawn, would inevitably catch the son just as it caught the father, and it would catch any other relative who took possession of property which had been transferred for the purpose of evading tax. He would find himself explicitly within the Clause as now drafted.
I give this view of my own with perhaps the more readiness because, although I bad not considered the matter until I heard it mentioned in the Committee a few moments ago, I am happy to think, in view of the promise of the Financial Secretary, that the matter will be further examined. I hope that, when he does examine it, he will give consideration to the present position with regard to such an individual's liability to pay Income Tax on the income of the foreign possession which he gets and which becomes a part of his income in this country. It is only when he seeks to evade that and proceeds to make the associated transactions that he will once more get within the Clause as it is drafted. If that view is right, it will bring to an end this discussion, because then we shall get the 694 very thing that we are all seeking to do and make quite certain that the son will not escape when the transfer is by the father, but the associated arrangements are by the son. I would like the Financial Secretary to say whether the transfer by the father, plus associated arrangements by the son, is sufficient to make the son responsible under the Clause. In my view it is, but if there is a hole to be stopped up here, I hope we shall get it stopped.
§ 6.25 p.m.
§ Mr. GARRO JONES
With great respect to the experience of the last speaker, I am not able to share his assurance in regard to the meaning of this Clause. We are engaged in bringing into the realm of evasion an act which has hitherto been defined only as avoidance of Income Tax, but we are only bringing it into the realm of evasion in so far as it applies to the individual who carries out that evasion. Once the property has been transferred, the guilt of evasion is washed away. I should like to stress the urgent necessity of stopping this apparent leakage in the intentions of the Treasury. There is an even more important aspect of the Clause, of which it would be well for the Committee to take note. A large part of our difficulties in regard to this question of Income Tax arises from statements which have been repeatedly made at that Box, attempting to draw a casuistical distinction between evasion and avoidance. I have heard the Chancellor of the Exchequer say that if a business man can dodge—I do not suggest that he used that actual word—the law, he is perfectly entitled to do so. I would like the Chancellor of the Exchequer and the Financial Secretary to the Treasury to throw some cold water on the statement that there is no guilt whatever in an attempt to avoid the letter and spirit of the law because evasion is nothing more than avoidance.
I think the hon. Gentleman is getting rather beyond the somewhat limited scope of the Amendment.
§ Mr. GARRO JONES
I think to a certain extent that is so, if I may say so very respectfully, but I think these are factors which may be of some interest to the Committee, having regard to the nature of the proviso which we are pro- 695 posing to delete. Although I support the Amendment, I am not at all sure that I do not welcome the appearance of this proviso in the Bill, because it implies an admission by the Treasury, so far as I know for the first time, that it is possible to adjudicate upon guilty intentions in regard to the avoidance or the evasion of Income Tax. I will not argue against that view, although there will be considerable difficulties in interpreting the proviso in the courts. The hon. and learned Member will know that once you have passed from the realm of purpose to that of intentions, you are in the realm of what an ancient judge once described as the thoughts of man, and, he said, "the thoughts of man are not triable, for the devil himself knoweth not the thoughts of man." I believe we have reached that stage here. I hope we shall get some information about this point, because we shall hope to use it later on. Who is to say what the main purpose in the mind of the transferor is?
§ Mr. GARRO JONES
With respect, Captain Bourne, this is a proviso which excludes from the operation of the Clause transfers which are effected for some purpose other than the purpose of avoiding liability to tax. Surely I am right on the point there when I endeavour to show that it will be impossible to say what the purpose in the mind of the transferor was. I cannot conceive of anything more relevant than that.
There is an Amendment to those specific words which I am proposing to call later.
§ Mr. GARRO JONES
Then I shall leave that point and come to the point which has already been discussed by the hon. Baronet the Member for Farnham (Sir A. M. Samuel). He stated that certain property which, having had this provision made in regard to it for Income Tax evasion, was then bequeathed or left to an heir, or fell by intestacy to an heir, would not be liable to this tax.
§ Mr. GARRO JONES
I am sorry if I have misinterpreted either hon. Gentleman. I will put forward to the Financial Secretary the case of a man who makes these convenient dispositions in regard to Income Tax and then effects a transfer of the property for a valuable consideration. Is it possible then to follow to the property that is transferred the consequences of that evasion in loss to the Treasury? Under the Clause it will not be possible to follow that evasion and make recovery and reparation to the Treasury. That being so, all those lawyers who have been skilfully and lucratively spending their time in finding loopholes in the existing law will be busily engaged in devising loopholes in this law, and we shall find a class of property advertised for sale which has been made the subject for these convenient dispositions. It will, therefore, enable people to acquire property which, although they may pay a lesser or a larger amount for it, will still deprive the Treasury of what it might originally have received in Income Tax had not this disposition been made. This is a potential loophole which ought not to be passed with the assurance that it will be looked into on some future occasion. The Committee ought to be satisfied beyond a shadow of doubt now that it will be closed.
§ 6.32 p.m.
§ Mr. BENSON
I hope that the Financial Secretary, in view of the criticism that this proviso has received and of the extreme difficulty he finds in interpreting what it means, will accept the Amendment and introduce on the Report stage a more carefully drafted proviso if it be thought necessary. At present it is most unsatisfactory. The Financial Secretary admitted that he had not realised its implications, and hon. and learned Gentlemen on both sides of the Committee have explained that it means different things. It is unsatisfactory that the Committee should be asked to pass an important proviso like this when the Committee has had no guidance from the Attorney-General, the Financial Secre- 697 tary or any other hon. and learned Gentleman.
§ 6.33 p.m.
§ Mr. W. S. MORRISON
The Debate that we have had on this matter is an admirable example of what this Committee can do when the subject of tax evasion and avoidance, which is a wide and complicated one, is under discussion. Of course, everything that has been said on this question will receive careful consideration before the Report stage in the hope that it will be possible to improve matters still further. I should not like hon. Members to be under any impression that the Government think it possible to have this Clause without the proviso. It may be that some improvement in its language will be discovered, but, unless there is some proviso for safeguarding proper commercial interests, we could not pass the Clause in its present form. Several questions have been put, and one in particular that I will consider is that put by the hon. Member for Farnham (Sir A. M. Samuel). Half of my difficulty in answering it now is that I do not know how a man can sell a right to avoid Income Tax. It seems a very strange form of property, but I think that I know what is at the back of the hon. Gentleman's mind. I think that he fears, if there v-ere a sale of the actual assets which are contained in a company, that perhaps by some sort of arrangement the purpose of the Clause might be avoided. I have a strong suspicion that such an operation would probably be caught under the definition given of associated operations, but I will gladly consider the point. I am much obliged to hon. Members for their contributions to this very difficult subject, and I hope that we may now come to a decision.
§ Mr. PETHICK-LAWRENCE
In view of what the Financial Secretary said, that he will give consideration to this proviso, and that, if he comes to the conclusion that it should be altered, he will amend it on Report stage, I will ask my hon. Friend not to press the Amendment.
§ Amendment, by leave, withdrawn.
§ 6.37 p.m.
§ Sir J. WARDLAW-MILNE
I beg to move, in page 12, line 1, to leave out "if the individual shows," and to insert "unless the Commissioners of Inland Revenue show."
698 This Amendment must be read with the Amendment in my name in page 12, line 4, to leave out "mainly for some purpose other than," and to insert "for." If these Amendments are made, the proviso will read:Provided that this Sub-section shall not apply unless the Commissioners of Inland Revenue show to the satisfaction of the Special Commissioners that the transfer and any associated operations were effected for the purpose of avoiding liability to taxation.What has been said in the Debate on the last Amendment has simplified my task because my hon. and learned Friend the Financial Secretary has made it clear that, while he is anxious, as we all are, to bring within the scope of the Bill those who are endeavouring to avoid taxation, he did not want to spread his net wider than any of us would want it spread. There is no question in this Amendment of assisting tax evasion. We are perhaps even more anxious than my hon. and learned Friend to see that his net is properly spread. The important point of the Amendment is that, as the Clause is drafted, the onus of proof is entirely on the taxpayer. He has to prove himself innocent instead of the authorities proving him guilty. That is a complete change in the system of English law. Hitherto, we have always understood that a man was innocent until he was proved guilty. In this proviso he is held to be guilty until he is proved innocent. That is a strange change in the whole system on which our taxation works, and one which the Committee would be well advised to consider carefully.
The Amendments which I propose will change the onus of proof from the individual to the Commissioners of Inland Revenue. As the Clause stands, the Inland Revenue are to be entirely the judges of their own cases. In connection with the previous Amendment the Financial Secretary referred to the possibility of a reference to the Board of Referees. That remark met with a certain amount of laughter from those who have had any experience of the board. In the last four years there have been only two decisions by the Board of Referees in favour of the taxpayer. In the previous four years there were no decisions in his favour. It is, therefore, hardly possible to put this body forward as one in which 699 the taxpayer will feel any satisfaction or confidence that he will have a square deal. The fact of the matter is that the Board of Referees has been a complete failure for carrying out its original purpose of giving security to the taxpayer, and nobody has any confidence in it to-day. Reference to it is an extremely costly matter. You might just as well refer to the Privy Council or the House of Lords as go to the Board of Referees, even if you had a chance of getting a decision in your favour. I will ask my hon. and learned Friend to eliminate that argument as one that will not carry much weight. If that argument is removed, the whole onus of proof is put on the individual to prove that he is not guilty. These Amendments will have the effect of transferring that onus to the authorities. I am suggesting in my second Amendment that if we leave out "mainly for some purpose other than"—
I am calling that Amendment later, and it would be better if the hon. Gentleman did not deal with it now.
§ Sir J. WARDLAW-MILNE
I mentioned it because it is really part of the present Amendment. I agree that this proviso is necessary, but the onus of proof that a man is trying to avoid taxation should be on the authorities. To place on the taxpayer the burden of proving that he is not avoiding taxation is a provision which the House of Commons would not like to see in any Act of Parliament.
§ 6.43 p.m.
§ Sir A. M. SAMUEL
This Amendment will strengthen the Clause and make it effective. I do not like fishing inquiries by the authorities and placing the onus on a man to prove himself innocent. I have been so many years in the House that I can remember taking part in the discussions when we set up the Board of Referees. I thought that the board would act as a buffer between the taxpayer and the revenue authorities and that it would act in such a way as to give satisfaction to everybody. The gentlemen who form the board are honourable gentlemen and are doing their best, but I am completely satisfied that the system of the board has failed. It sits very infrequently—
I do not see, whether this Amendment is accepted or not, that it will affect the position of the Board of Referees.
§ Sir A. M. SAMUEL
I bow to your Ruling, of course, but the Financial Secretary has used the Board of Referees in an earlier stage of the debate on an Amendment to the Clause as an argument when he said it was a buffer, and the point I was trying to make was that the Board of Referees is not a satisfactory solution. I was proposing to give my reason for it. If I am in order I will proceed, but if not I will not go any further. May I say that the Board of Referees—
I have already said that the operations of the Board of Referees do not arise on this Amendment.
§ 6.46 p.m.
§ Mr. BENSON
The speech of the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) was somewhat disingenuous, using that word without any reflection on him. He suggested that he was proposing to take out of this paragraph the unpleasant sting which it contained in that the taxpayer had to prove himself innocent. I do not think that is quite the case. The taxpayer, if he wishes to come outside the scope of the Clause, has placed upon him the burden of giving an adequate alternative explanation of his action. It is not a question of proving himself innocent, he has to show merely that he had an adequate alternative motive, which is a very different matter. If he had that motive it is easy to show it, and no burden is placed upon him by asking him to do so. On the other hand, the Amendment proposes that the Special Commissioners will have to show not that there is another alternative explanation but that there is no explanation save tax evasion. It means that they have to exclude all other possible explanations. Therefore, the hon. Member is trying to put them into the impossible position of proving a negative.
§ Sir J. WARDLAW-MILNE
A few moments ago we were told by the Financial Secretary that in these cases 701 it was perfectly easy for these Special Commissioners to know where there is tax evasion.
§ Mr. BENSON
The opinion of the Financial Secretary, interesting though it frequently is, will not be the criterion by which this law is judged, and, obviously, if the Special Commissioners have to show that the purpose is evasion they can only do so by a process of exclusion, showing that there is no other possible explanation, and that puts them in the position of having to prove a negative. I hope that the Chancellor will firmly resist this Amendment, for it would, in effect, make the whole of the Clause valueless.
§ 6.48 p.m.
§ The ATTORNEY-GENERAL
Nobody will complain of any hon. Member raising the very important and fundamental issue of whether a Clause does or does not appear to contradict the general principle of our law that people should be presumed to be innocent until proved to be guilty. That is a fundamental principle of our law. On the other hand, our law is equally familiar with the operation of what may be called the shifting of the onus of proof. Before we get to the proviso the conditions to which my hon. and learned Friend the Financial Secretary referred earlier have to be satisfied. First, it has to be found that a man has made a transfer of assets, and then it has to be found that he is enjoying the product of those assets in a form which, under the existing law, does not render him liable to taxation. Therefore, we start with a series of transactions which have enabled a man, while maintaining the same assets, to reduce the contribution which he makes to the National Exchequer; and it is only when those conditions have been satisfied that the proviso does, as I recognise, shift the onus of proof to the taxpayer.
We were urged by hon. Gentlemen opposite not to bother about the motive in all these cases if there has been a transfer of assets, but we do not accept that view. We think that if a man starts a branch business in India or elsewhere, and transfers assets for the purpose of getting that branch of his business going, he should not come within the purview of this Clause, and this proviso is to enable cases of that kind to escape the operation of the Clause. It is not a question of pre- 702 suming a man guilty until he proves himself innocent, but a case of allowing a man to escape from the general principle if he can satisfy the Commissioners that the purpose for which he undertook the transfer was not the purpose against which the Clause is aimed. Further, it is proper and relevant to consider the point that the facts which come within the terms of the proviso are, and must be, all within the knowledge of the taxpayer and cannot be within the knowledge of the Special Commissioners.
It is perfectly true, as was pointed out in answer to an interruption, that the vast majority of cases are plain on the face of it, and that the taxpayer is not in the least trying to disguise the object for which he has entered into the transaction, and it does not matter where you put the onus of proof, but there will always be marginal cases in which there may be some element other than tax evasion, or where the documents had been so skilfully drawn up that they were inconsistent with a motive other than that of tax evasion. It is doing no injustice to say to the taxpayer, "You have got off a certain amount of Income tax as a result of a transfer of assets. The intention of Parliament is that people who do such things should not, by such transactions, diminish the contribution they make to the national income. If you can satisfy us that you did it mainly for some other purpose than the purpose of evading liability to taxation, we will accept the explanation." Looked at in that light I hope the Committee will consider that this is not an unfair or oppressive provision, but that in the circumstances it is a reasonable provision for the Committee to pass.
§ 6.55 p.m.
§ Mr. SPENS
I was rather sorry to hear what the Attorney-General said. I agree with the arguments put forward by the mover of the Amendment, and I would ask the Attorney-General and the Chancellor of the Exchequer to consider one other aspect of the question before they insist on having this proviso in this form. There have been many transfers of assets abroad from which the people of this country are still enjoying income, and a very great number of those people will consider, rightly or wrongly, that those transfers have been made mainly for some other purpose than that of 703 avoiding liability to our taxation. In order to get off paying taxation every one of those subjects will have to make an application to, and be heard by, the Special Commissioners, and I suggest that that will lead to appalling delay in the dealing with tax cases by that body. Apart from the merits of the arguments put forward by the mover of the Amendment, I suggest that if we put the position the other way round it would mean that the Commissioners of Inland Revenue would then, in cases where they think—and they can always get at the facts, because they have got all the returns—there is a prima facie case, and only in those cases, go before the Special Commissioners, and the Special Commissioners would have a far smaller volume of this work to do and be far more able to cope with it. These tax cases would then be dealt with without the delay which in so many cases is so inconvenient to the subject.
§ 6.57 p.m.
My hon. and learned Friend has said, and I think quite clearly, that in certain cases the onus of proof may shift at certain points in the transaction. If I understand his point it amounts to this, that the Special Commissioners have got to prove the transfer to a foreign person or company and to prove that the enjoyment within the meaning of Sub-section (3) of this Clause is still in the possession of the transferor. At that point, he suggests, the onus of proof should shift, and the taxpayer should be the person to prove that he is not liable to taxation. The reason he gave for that was that all the facts are in the knowledge of the taxpayer and that proof is a matter of ease to him. Surely the same argument could be used with regard to any taxing statute. On that argument you might in all cases shift the onus of proof to the taxpayer, but the State up to now has very wisely left the burden of proof on the taxing authority. There are very good reasons for that, and we need pretty strong arguments before, in this case of all cases, we shift the burden of proof, for here we have a Clause which, by the statement of my hon. and learned Friend the Financial Secretary, was expressly put in for the taxpayer, and it does not protect him as fully as it might do.
704 It comes back to what my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) said, that the taxpayer has to prove a negative, has to prove that he was not avoiding taxation. We are not protecting him. I do not want to excuse or to give any loophole for any avoidance of tax. That is a very bad thing for all of us, because the more Income Tax is avoided the bigger the charge which falls on the rest of the unfortunate taxpayers. I want all people who avoid tax in this way to be caught, but I do not want them to be put in a very difficult position. My right hon. and learned Friend referred to business transactions which might at first sight look as though they were avoidance of taxes. Are all transfers of assets to a foreign country, where the enjoyment within the wide ambit of Sub-section (3) is left to the transferor, to be the subject of inquiry and to come before the Special Commissioner? I would call attention to paragraph (e) which states:the individual is able … whether directly or indirectly, to control the application of the income.Surely a case may arise in some business transactions in which he could control the application of the income and yet get no benefit from the income. This is not only a case of enjoying the income. It is a case where he controls the income, and that opens a very wide door. A wide interpretation has been put on the expression "enjoyment of income," and specially suitable terms should be given to the taxpayer who is an innocent party. This Clause has been put in ostensibly for the protection of the taxpayer, and I do not see why in this special case, where a special obligation is imposed, the protection of the innocent taxpayer should not be extended.
§ 7.3 p.m.
§ Mr. GARRO JONES
I confess to some degree of satisfaction in finding myself in this instance on the side of the Attorney-General. I was rather surprised to hear him import the language of the criminal law in his attempt to repudiate this Amendment. He spoke about the guilty and the innocent. I would prefer to use the language of the civil law, and say that this Clause, with the exception of the 705 proviso, clearly comes within the sphere of those who make the assessment. That is the statement of claim. The proviso clearly comes within the province of the reply or the appeal, and the hon. and learned Member for Ashford (Mr. Spens) has misconceived the method of operation of the Amendment if he imagines that it would expedite the settlement of taxing difficulties. Does he suppose that to move the Commissioners of Inland Revenue to get the taxpayer out of a difficulty would be a quicker operation than to allow that individual to act for himself? Who is to move the commissioners to get the taxpayer out of this ne? The individual is the only person who has the information.
§ Mr. SPENS
The hon. Member is wrong. The individual will in every case have to move to get himself out of the net. That will probably mean 2,000 cases next year if the Amendment is accepted. The commissioners will move in such cases as they think the Section applies to, which will probably be 200 or 300. If the Amendment is not accepted, I suggest that the number of applications will cause great delay in the Special Commissioners' machinery, whereas if this Amendment is accepted the applications to be dealt with would be much fewer.
§ Mr. GARRO JONES
Before we can really decide who is the best person to submit that he is not liable to tax we should have a clearer definition of the meaning of the word "purpose." Until we know the meaning of that word, we cannot possibly decide whether the individual or the commissioners would be competent to state a case. I hope that before we dispose of this Amendment we shall get a clearer definition of the word "purpose."
§ Mr. GARRO JONES
I bow to your Billing. We cannot reach a satisfactory decision in fullest detail without going into the facts with which I wish to deal. Apart from that, we have enough evidence to entitle the Attorney-General to reject this Amendment, and I hope he will do so.
§ 7.7 p.m.
§ Mr. FOOT
I find myself in considerable sympathy with the Amendment and the arguments of those who have supported it. This proviso as it stands imports two extremely undesirable principles. The test of liability is not the effect of acts that are done, but the intention with which they were done. That is an extremely difficult thing for any tribunal to decide. It has been pointed out by several hon. Members that we are in fact placing the onus on the taxpayer and calling on him to prove a negative, always an extremely difficult thing to do. Nobody in this Committee has any sympathy with the tax dodger, but it would be unfortunate if, because we desired to catch those who have been avoiding taxation, we were to establish in our Income Tax law an extremely undesirable principle which might be extended in future to a much more deserving class of taxpayer. It is the first time, I think, that the onus has been placed on the taxpayer as against the Income Tax authorities. I may be wrong, but it is certainly rare in our Income Tax law. The Attorney-General referred to shifting onus, and said there were cases in our law where, after the Crown had proved its case up to a certain point, the onus shifted and something had to be proved by the defendant. These cases of shifting onus are the exception rather than the rule.
§ The ATTORNEY-GENERAL
No. In criminal law the onus practically never shifts. I was thinking of civil proceedings where it shifts from time to time.
§ Mr. FOOT
I should have thought it extremely rare in criminal cases. I referred to it only because the Attorney-General and one or two other hon. Members referred to the criminal law. I would like to take the analogy of a man who is charged with receiving goods knowing them to have been stolen. There the prosecution first proves that the goods have been stolen, and that they were in the possession of the defendant. When it has got to that point the defendant is expected to give an explanation, and if he fails to do so, or fails to give a reasonable explanation, then the jury is entitled to find him guilty without inquiring into the matter further. In a case like that the onus of proof never shifts. The onus always remains on the 707 Crown, and the man is never called on to prove affirmatively his own innocence. All that he is called on to give is an explanation. In a case like this the tax commissioners would prove there had been a transfer of assets within the meaning of the earlier part of the Clause, that the income from those assets was being enjoyed by a British subject in this country, and then they would be entitled to call on the taxpayer for an explanation of the reasons why he made this transfer. If he failed to give an explanation, no doubt they would be justified in assuming the worst. But that is a different thing from placing the whole onus of proof on the taxpayer, and that is what is being done under the Clause. I agree with hon. Members opposite that whatever may be the excuse in this case it is a particularly undesirable precedent.
§ 7.12 p.m.
§ Mr. CROOM-JOHNSON
I hope that the Chancellor of the Exchequer will give further consideration to this question. By this Clause we are making a breach in a principle in connection with Income Tax law which perhaps is worth making. The breach is this: Hitherto it has always been supposed that a man was entitled so to order his affairs as not to attract taxation. Suppose a man practising professionally finds that if he makes a certain amount of money in a year he will pay a certain amount of taxation, but if he makes a few hundred pounds more he will have to pay a great deal more tax. He may legitimately say that he will not work more than six months and therefore avoid attracting taxation. That is not a fanciful picture.
I, in common with my friends who have put down this Amendment, agree with the Government that the time has come when we cannot permit that state of affairs to continue, and that we must do something to make certain that the application of that doctrine does not stray over the narrow boundary into becoming tax evasion. But in making that breach in what has been the situation up to now, we should be extremely careful to see that we are not opening the door to possible troubles with regard to people who, on the face of it, may perhaps look as if they were doing that thing which we are seeking to stop. This 708 question of the onus of proof will not in a majority of cases be very difficult. I am inclined to accept the view put forward by the Financial Secretary when he said that in the great number of these cases it was apparent at once that they could have no other object than that of seeking to avoid the duties of citizenship in paying one's proper proportion to the State. If that is so, if the Amendment were passed the onus of proof would be discharged at once in all these cases by the mere production of a document. Under the Income Tax law, the officials are quite able to get such information by making the necessary request to the court. I am quite aware of the practice of making a nominal assessment of a large sum in suspicious cases, and of leaving the person to appeal and to substantiate his appeal, but that is not the kind of case which we are discussing. This is the case where the man has transferred his assets out of the jurisdiction of the authorities and is making other arrangements, the effect of which will be that they will not come within the purview of Income Tax at all. We are dealing with a very exceptional case, from the point of view of the large majority of the Income Tax collectors of the country. I admit that there is a substantial number of them and that they are probably all people with substantial incomes; but, however, that may be, the situation is still that, on production of the relevant document, which has to be produced already to the Income Tax people under Section 16, as was pointed out by the Attorney-General a moment or two ago, you still have the question left; "What is the main purpose of what is being done?"
In ordinary cases, upon the production of the document, the main purpose of it sticks out a mile, and there is no difficulty in those cases in putting the documents before the Special Commissioners, in whom all taxpayers have, I think, complete confidence, and who discharge their duties with care and assiduity, and complete satisfaction. You then say, "Here is a prima facie case, and the onus of proof is satisfactory." We are not dealing with the cases in which you can make that sort of statement at once, but with borderline cases in which there is at least the possibility that if you pass the onus of proof on to the person 709 who is being attacked by the Income Tax Commissioners, there may be room for injustice or a miscarriage of justice. That is the only type of case with which I am concerned. I am sure the Committee will not forget that it usually means considerable expense when a person has to make his case out before the Commissioners. In the large number of cases of people of substantial means, I should not weep any crocodile tears if it cost them a good deal of money in order to substantiate their true position, but there are cases in which the cost falls upon an individual who has proved his case contrary to the views put forward by the Income Tax officials. The expense of proving his case still rests upon his shoulders, and there is no possibility of the individual who has won his case getting an order upon the Commissioners so as to obtain his costs. In those circumstances, I hope that the Government will give further consideration to the point.
I desire further to emphasise and support the plea which was raised by my hon. and learned Friend the Member for Ashford (Mr. Spens) in connection with the practical point which lies behind this discussion. As the Clause stands, it looks as though all these cases must come before the Special Commissioners in the first instance, but they are a body of people who have quite enough work to do, if not more than they can satisfactorily carry out in present circumstances. To impose any new jurisdiction upon them would be adding to the burdens of their work. I suggest that, from the point of view of the convenience of the tribunal as well as in the interests of justice and minimum expense to the taxpayer, the Government would be well advised to give further consideration to the proposal which is enshrined in this Amendment.
§ 7.22 p.m.
§ Mr. HOLMES
I hope that the Chancellor will resist this Amendment, because it will mean a great waste of public time and public money. A number of people are avoiding Income Tax, by transactions resulting in the transfer of income abroad. These are known to the Chancellor and the officials who work in the Inland Revenue Department, but the avoidance is legal, and nothing can be done about it. If the Bill becomes an Act with this Clause in it, such people will immediately become liable to Income 710 Tax assessment, which will forthwith be made upon them, and they will have an opportunity of proving whether or not the transference has been done for any other purpose than avoidance of Income Tax. If the Amendment goes through, every case will have to be taken by the Commissioners of Inland Revenue to the Special Commissioners before an assessment can be made, and that will choke the Special Commissioners' Department with unnecessary cases, and cause the Commissioners of Inland Revenue a great deal of work which might be avoided.
§ 7.23 p.m.
§ Mr. McCORQUODALE
No fewer than eight members of the legal profession have followed one another in this Debate, and if I may say so, there has been an appalling smoke screen from the verbiage which those learned gentlemen have put up which has been sufficient to obscure the very simple proposal upon which the Amendment rests. All that this part of the Clause does is to provide a method by which certain people may claim relief from taxation. Anybody who claims relief from taxation has to show why he should obtain it. I have to show that I have a wife before I can claim legal relief. Why should not the people who claim some relief from taxation, owing to the operation of these mysterious methods, prove it, too? I hope that the Chancellor of the Exchequer will in no sense give way to the massed formation of the legal profession behind him.
§ 7.24 p.m.
If the Amendment were carried it would, in my opinion, wreck the Clause. Hon. and learned Members have said that that is the last thing they want to do, and I accept what they say, but I hope they will allow me to say that they must find a better method of meeting their difficulties than that proposed in the Amendment. I think they exaggerate the difficulties which they anticipate will attend the working of the proviso. I do not anticipate that every time anybody wants to show that his main purpose is not tax avoidance he will have to appear in person before the Commissioners. Very often the case may be put in writing and sent to the Commissioners, without the necessity for a personal appearance. I will consider the practical suggestions put forward by my hon. and learned Friends as to difficulties, and if I think the proviso can be improved so 711 as to meet their point, I certainly will not be averse from reconsidering it. The Amendment would put upon the Inland Revenue Commissioners the onus of proving in a good many cases where they could not possibly do so.
§ Sir J. WARDLAW-MILNE
In view of what my right hon. Friend has said as to being prepared to consider the matter further, in order to see whether the Clause can be changed to carry out the wish of the Committee, I am prepared to withdraw the Amendment. If the method we propose is not the best, I hope the right hon. Gentleman will not forget that it is not our object to change the present practice of British law.
§ Amendment, by leave, withdrawn.
§ 7.27 p.m.
§ Mr. ALBERY
I beg to move, in page 12, line 4, to leave out "mainly."
The purpose of the Amendment has already been referred to. More difficulty would be created by leaving in the word "mainly" than by taking it out. The Attorney-General has stated that it is often not clear whether the transaction has taken place for the purpose of evading taxation or not, but it is difficult to know how the word "mainly" can be interpreted in some of those cases. I can conceive where it would be fair to decide what the word "mainly" means in its mathematical sense. You can have a sum in which the figure 60 is "mainly," as compared with 40. I would ask the Attorney-General what his decision would be on the word "mainly" in a case which I propose to put to him. Suppose that a man transfers property to America. We will take the sum as £100,000. Suppose that £60,000 of that property brought him no income at all, and the remaining £40,000 brought him income. Would the fact that the larger portion of the property brought him in no income justify the interpretation that the transaction had not taken place for the purpose of tax evasion? I hope the Attorney-General will be able to give me some reason for the retention of the word.
§ 7.30 p.m.
§ Mr. LEWIS
In supporting the Amendment, I would ask the Chancellor of the Exchequer whether he can help the Committee to this extent. Earlier in the afternoon, the Financial Secretary told 712 us that in most of the cases which come within Clause 16 it was obvious on the face of it that the purpose of the individual was to evade taxation, and he also told us that he had himself examined a number of such cases. I take it that probably the attention of the Chancellor also has, been directed to a number of individual cases, and I would ask him whether he has ever come across a single case which, while satisfying the conditions laid down in the Clause, would yet come within the proviso to Subsection (1)? If so, I think it would greatly assist the Committee if he would give an illustration of the facts of such a case, obviously, of course, leaving out names. It is very difficult in these complicated matters to follow the purpose of a, Clause without any concrete illustration.
§ 7.32 p.m.
I am afraid I cannot oblige my hon. Friend by giving him details of a particular case. Indeed, I have not occupied a great deal of my time in running through specimen cases, though my hon. and learned Friend has had to deal with such cases in the course of his professional work. It is, however, quite easy to imagine that such cases might arise, and we have to provide for a contingency which, if it did arise, ought certainly to be covered in the Bill. I would ask the Committee to consider the effect of the Amendment if it were carried. The effect would be that the Clause could not operate, if any taxpayer could give any reason whatsoever, in addition to avoidance of tax, for his action in transferring some of his assets abroad. No great ingenuity would be necessary to find, not one, but half a dozen other reasons than tax avoidance. The object of the proviso is that a taxpayer whose main purpose was other than tax avoidance should be able to show that that was the case and so escape the operation of the Clause. To delete the word "mainly" from the proviso would, I am afraid, be fatal to the Clause.
§ 7.33 p.m.
§ Mr. PETHICK-LAWRENCE
I do not quite understand whether the right hon. Gentleman means that it would be fatal to the Clause or fatal to the proviso. It seems to me that the object of the proviso is to make sure that, where the object of transference is some quite 713 legitimate and natural object, the taxpayer should not bear this additional burden, but the effect of the word "mainly" seems to me to be that, if a man has two objects, one of which is quite legitimate and the other is to evade, or at any rate to avoid, the tax, he will escape. I do not see why he should escape. If he achieves one of his purposes, which is to evade the tax, I should have thought that he ought to be caught.
If his main purpose is to avoid the tax he will be caught under the Clause as it is in the Bill, but if the Amendment is carried, provided that he can give any other reasons besides tax avoidance, he will escape the operation of the Clause.
§ Mr. PETHICK-LAWRENCE
Perhaps the right hon. Gentleman would explain that a little more clearly, for it does not seem to me to be the case. The proviso reads:Provided that this Sub-section shall not apply if the individual shows to the satisfaction of the Special Commissioners that the transfer and any associated operations were effected mainly for some purpose other than the purpose of avoiding liability to taxation.I suppose that the important word is the word "some," though on my first reading it seemed to me that the main words were "for the purpose." I quite admit that that is not the Amendment, but I think it is what my hon. Friend has in mind.
§ 7.35 p.m.
§ Mr. TINKER
I am not very clear on this point, but I understand that, if the word "mainly" were taken out, anyone who had transferred income would avoid any payment of tax at all, and it seems to me that that would provide a loophole for avoidance. I am not satisfied, however, as to whether if the word "mainly" were taken out, it would worsen the Clause, and I should be glad if the right hon. Gentleman could give us some further explanation, so that we may be satisfied. I do not know whether the supporters of the Amendment are satisfied with the explanation he has already given, but I certainly am not.
§ 7.36 p.m.
§ Mr. ALBERY
I have listened to what the Chancellor had to say, but I must confess that I still remain rather 714 surprised at the view he takes. If the word "mainly" were left out, the proviso would read:Provided that this sub-section shall not apply if the individual shows to the satisfaction of the Special Commissioners that the transfer and any associated operations were effected for some purpose other than the purpose of avoiding liability to taxation.It seems to me to be quite unfair to put upon the taxpayer the onus of showing that he had not any object of avoiding taxation. It seems to me that the Clause is intended to apply wherever there is an attempt to avoid taxation, and, if that be so, I fail to see the necessity for the word "mainly."
§ 7.37 p.m.
My hon. Friend is speaking as though his Amendment were one to leave out the word "mainly" and to substitute the word "solely." In that case it might, perhaps, bear the construction that he is putting upon it, but, as I read the proviso, it means that, if the word "mainly" were taken out, the individual would have to show that the transfer and any associated operations were effected for some purpose in addition to the purpose of avoiding liability to taxation.
§ Mr. BENSON
I think the word "mainly" is hardly a, desirable word to use in this Clause, because it allows some portion of the purpose to be tax avoidance, whereas I think that tax avoidance ought to be completely excluded. Would the Chancellor of the Exchequer be prepared to consider the substitution of the word "solely"?
No, because I think that that would be too hard on the taxpayer. Although the taxpayer's main purpose might be other than tax avoidance, it would be extremely difficult for him to say that he was not also influenced by the fact that, in effecting his main purpose, he would incidentally relieve himself of taxation. To put upon him the onus of proving that that did not enter into his mind at all would be going too far.
§ Mr. BENSON
The Financial Secretary gave certain examples of cases in which the motive, even if it were a minor motive, was tax avoidance, and surely, if tax avoidance plays any part whatsoever 715 in this series of operations, it ought to be discouraged, and ought not to be allowed to bring the transactions outside the Clause.
§ Mr. LEES-SMITH
May I say that, if the Amendment goes to a Division, we shall vote for leaving out the word
§ "mainly," with the intention of moving subsequently the insertion of the word "solely"?
§ Question put, "That the word 'mainly' stand part of the Clause."
§ The Committee divided: Ayes, 222; Noes, 107.717
|Division No. 233.]||AYES.||[7.41 p.m.|
|Acland-Troyte, Lt.-Col. G. J.||Foot, D. M.||Morrison, W. S. (Cirencester)|
|Adams, S. V. T. (Leeds, W.)||Fraser, Capt. Sir I.||Munro, P.|
|Agnew, Lieut.-Comdr. P. G.||Fremantle, Sir F. E.||Nall, Sir J.|
|Aske, Sir R. W.||Fyfe, D. P. M.||Neven-Spence, Maj. B. H. H.|
|Atholl, Duchess of||Ganzoni, Sir J.||O'Connor, Sir Terence J.|
|Baldwin, Rt. Hon. Stanley||George, Major G. Lloyd (Pembroke)||Orr-Ewing, I. L.|
|Balfour, G. (Hampstead)||George, Megan Lloyd (Anglesey)||Patrick, C. M.|
|Balfour, Capt. H. H. (Isle of Thanet)||Gledhill, G.||Peat, C. U.|
|Barclay-Harvey, C. M.||Gluckstein, L. H.||Percy, Rt. Hon. Lord E.|
|Baxter, A. Beverley||Grattan-Doyle, Sir N.||Petherick, M.|
|Beit, Sir A. L.||Gridley, Sir A. B.||Pickthorn, K. W. M.|
|Bernays, R. H.||Griffith, F. Kingsley (M'ddl'sbro, W.)||Plugge, L. F.|
|Bird, Sir R. B.||Gritton, W. G. Howard||Ponsonby, Col. C. E.|
|Blair, Sir R.||Guest, Maj. Hon. O.(C'mb'r W'll, N.W.)||Pownall, Sir Assheton|
|Blindell, Sir J.||Guinness, T. L. E. B.||Radford, E. A.|
|Boulton, W. W.||Gunston, Capt. D. W.||Raikes, H. V. A. M.|
|Bower, Comdr. R. T.||Hanbury, Sir C.||Ramsbotham, H.|
|Boyce, H. Leslie||Hannah, I. C.||Rathbone, J. R. (Bodmin)|
|Braithwaite, Major A. N.||Hannon, Sir P. J. H.||Rayner, Major R. H.|
|Brass, Sir W.||Haslam, H. C. (Horncastle)||Reed, A. C. (Exeter)|
|Briscoe, Capt. R. G.||Haslam, Sir J. (Bolton)||Reid, Sir D. D. (Down)|
|Brocklebank, C. E. R.||Hellgers, Captain F. F. A.||Reid, W. Allan (Derby)|
|Brown, Rt. Hon. E. (Leith)||Heneage, Lieut.-Colonel A. P.||Remer, J. R.|
|Brown, Brig.-Gen. H. C. (Newbury)||Hepworth, J.||Roberts, W. (Cumberland, N.)|
|Bull, B. B.||Herbert, Major J. A. (Monmouth)||Robinson, J. R. (Blackpool)|
|Burgin, Dr. E. L.||Hills, Major Rt. Hon. J. W. (Ripon)||Ropner, Colonel L.|
|Butler, R. A.||Holdsworth, H.||Ross Taylor, W. (Woodbridge)|
|Campbell, Sir E. T.||Holmes, J. S.||Rothschild, J. A. de|
|Cartland, J. R. H.||Hope, Captain Hon. A. O. J.||Ruggles-Brise, Colonel Sir E. A.|
|Carver, Major W. H.||Horsbrugh, Florence||Russell, A. West (Tynemouth)|
|Cary, R. A.||Hudson, Capt. A. U. M. (Hack., N.)||Salmon, Sir I.|
|Cayzer, Sir C. W. (City of Chester)||Hudson, R. S. (Southport)||Samuel, Sir A. M. (Farnham)|
|Cazalet, Thelma (Islington, E.)||Hume, Sir G. H.||Samuel, M. R. A. (Putney)|
|Chamberlain, Rt. Hn. N. (Edgb't'n)||Hunter, T.||Sanderson, Sir F. B.|
|Channon, H.||James, Wing-Commander A. W.||Seely, Sir H. M.|
|Chapman, A. (Rutherglen)||Joel, D. J. B.||Selley, H. R.|
|Clarry, Sir Reginald||Jones, Sir G. W. H. (S'k N'w'gt'n)||Shakespeare, G. H.|
|Clydesdale, Marquess of||Jones, L. (Swansea, W.)||Shaw, Major P. S. (Wavertree)|
|Colville, Lt.-Col. D. J.||Kerr, H. W. (Oldham)||Shepperson, Sir E. W.|
|Cook, T. R. A. M. (Norfolk, N.)||Kerr, J. Graham (Scottish Univs.)||Simon, Rt. Hon. Sir J. A.|
|Cooke, J. D. (Hammersmith, S.)||Kirkpatrick, W. M.||Smiles, Lieut.-Colonel Sir W. D.|
|Cooper, Rt. Hn. T. M. (E'burgh,W.)||Lamb, Sir J. Q.||Smith, Bracewell (Dulwich)|
|Courtauld, Major J. S.||Latham, Sir P.||Smithers, Sir W.|
|Courthope, Col. Sir G. L.||Law, R. K. (Hull, S.W.)||Somervell, Sir D. B. (Crewe)|
|Craddock, Sir R. H.||Leech, Dr. J. W.||Somerville, A. A. (Windsor)|
|Cranborne, Viscount||Leigh, Sir J.||Somerville. D. G. (Willesden, E.)|
|Crooke, J. S.||Lewis, O.||Southby, Comdr. A. R. J.|
|Crookshank, Capt. H. F. C.||Llewellin, Lieut.-Col. J. J.||Spender-Clay, Lt.-CI. Rt. Hn. H. H.|
|Crossley, A. C.||Lloyd, G. W.||Spens, W. P.|
|Culverwell, C. T.||Loftus, P. C.||Stanley, Rt. Hon. Lord (Fylde)|
|Davies, C. (Montgomery)||Lovat-Fraser, J. A.||Stewart, J. Henderson (File, E.)|
|Davies, Major G. F. (Yeovil)||M'Connell, Sir J.||Stourton, Major Hon. J. J.|
|De Chair, S. S.||MacDonald, Rt. Hn. J. R. (Scot. U.)||Strauss, E. A. (Southwark, N.)|
|Denman, Hon. R. D.||MacDonald, Rt. Hon. M. (Ross)||Strauss, H. G. (Norwich)|
|Dorman-Smith, Major R. H.||Macdonald, Capt. P. (Isle of Wight)||Strickland, Captain W. F.|
|Duckworth, W. R. (Moss Side)||McKie, J. H.||Stuart, Lord C. Crichton (N'thw'h)|
|Dugdale, Major T. L.||Macnamara, Capt. J. R. J.||Stuart, Hon. J. (Moray and Nairn)|
|Duggan, H. J.||Magnay, T.||Tasker, Sir R. I.|
|Duncan, J. A. L.||Makins, Brig.-Gen. E.||Taylor, Vice-Adm. E. A. (Padd., S.)|
|Dunglass, Lord||Manningham-Buller, Sir M.||Thomas, J. P. L. (Hereford)|
|Eckersley, P. T.||Margesson, Capt. Rt. Hon. H. D. R.||Touche, G. C.|
|Eden, Rt. Hon. A.||Mayhew, Lt.-Col. J.||Train, Sir J.|
|Edmondson, Major Sir J.||Mellor, Sir J. S. P. (Tamworth)||Tree, A. R. L. F.|
|Elliot, Rt. Hon. W. E.||Mills, Major J. D. (New Forest)||Tryon, Major Rt. Hon. G. C.|
|Elliston, G. S.||Mitchell, H. (Brentford and Chiswick)||Tufnell, Lieut.-Com. R. L.|
|Emrys-Evans, P. V.||Mitchell, Sir W. Lane (Streatham)||Walker-Smith, Sir J.|
|Erskine Hill, A. G.||Moore, Lieut.-Col. T. C. R.||Wallace, Captain Euan|
|Evans, D. O. (Cardigan)||Moreing, A. C.||Ward, Lieut.-Col. Sir A. L. (Hull)|
|Everard, W. L.||Morris, J. P. (Salford, N.)||Ward, Irene (Wallsend)|
|Findlay, Sir E.||Morris-Jones, Dr. J. H.||Wardlaw-Milne, Sir J. S.|
|Fleming, E. L.||Morrison, G. A. (Scottish Univ's.)||Waterhouse, Captain C.|
|Wells, S. R.||Willson, Lt.-Col. Sir A. T. (Hitchin)||Young, A. S. L. (Partick)|
|White, H. Graham||Windsor-Clive, Lieut.-Colonel G.|
|Wickham, Lt.-Col. E. T. R.||Winterton, Rt. Hon. Earl||TELLERS FOR THE AYES.—|
|Williams, H. G. (Croydon, S.)||Wise, A. R.||Sir George Penny and Mr. Cross.|
|Adams, D. M. (Poplar, S.)||Henderson, T. (Tradeston)||Parker, J.|
|Adamson, W. M.||Holland, A.||Parkinson, J. A.|
|Ammon, C. G.||Hopkin, D.||Pethick-Lawrence, F. W.|
|Banfield, J. W.||Jagger, J.||Potts, J.|
|Barnes, A. J.||Jenkins, A. (Pontypool)||Price, M. P.|
|Barr, J.||Jenkins, Sir W. (Neath)||Pritt, D. N.|
|Batey, J.||John, W.||Richards, R. (Wrexham)|
|Eellenger, F.||Johnston, Rt. Hon. T.||Riley, B.|
|Benson, G.||Jones, A. C. (Shipley)||Ritson, J.|
|Bevan, A.||Kelly, W. T.||Robinson, W. A. (St Helens)|
|Broad, F. A.||Kennedy, Rt. Hon. T.||Rowson, G.|
|Brown, Rt. Hon. J. (S. Ayrshire)||Kirby, B. V.||Salter, Dr. A.|
|Burke, W. A.||Kirkwood, D.||Sexton, T. M.|
|Charleton, H. C.||Lansbury, Rt. Hon. G.||Shinwell, E.|
|Cluse, W. S.||Lathan, G.||Short, A.|
|Compton, J.||Lawson, J. J.||Silkin, L.|
|Cove, W. G.||Leach, W.||Smith, E. (Stoke)|
|Cripps, Hon. Sir Stafford||Leonard, W.||Smith, Rt. Hon. H. B. Lees (K'ly)|
|Daggar, G.||Leslie, J. R.||Smith, T. (Normanton)|
|Davies, D. L. (Pontypridd)||Logan, D. G.||Sorensen, R. W.|
|Dobbie, W.||Macdonald, G. (Ince)||Stewart, W. J. (H'ght'n-le-Sp'ng)|
|Dunn, E. (Rother Valley)||McEntee, V. La T.||Strauss, G. R. (Lambeth, N.)|
|Ede, J. C.||McGhee, H. G.||Taylor, R. J. (Morpeth)|
|Edwards, Sir C. (Bedwellty)||MacLaren, A.||Thurtle, E.|
|Frankel, D.||Maclean, N.||Tinker, J. J.|
|Gardner, B. W.||MacNeill, Weir, L.||Viant, S. P.|
|Garro Jones, G. M.||Marklew, E.||Walker, J.|
|Gibbins, J.||Mathers, G.||Watkins, F. C.|
|Graham, D. M. (Hamilton)||Maxton, J.||Watson, W. McL.|
|Greenwood, Rt. Hon. A.||Messer, F.||Williams, D. (Swansea, E.)|
|Glenfell, D. R.||Milner, Major J.||Williams, E. J. (Ogmore)|
|Griffiths, G. A. (Hemsworth)||Montague, F.||Williams. T. (Don Valley)|
|Griffiths, J. (Llanelly)||Morrison, Rt. Hon. H. (Ha'kn'y, S.)||Young, Sir R. (Newton)|
|Hall, J. H. (Whitechapel)||Morrison, R. C. (Tottenham, N.)|
|Hardle, G. D.||Muff, G.||TELLERS FOR THE NOES.—|
|Henderson, A. (Kingswinford)||Naylor, T. E.||Mr. Whiteley and Mr. Groves.|
|Henderson, J. (Ardwick)||Oliver, G. H.|
Question put, and agreed to.
§ 7.59 p.m.
I beg to move, in page 12, line 19, to leave out "to be calculated, at some point of time, and."
I believe the omission of these words would make the Clause rather stronger. Paragraph (a) deals with one of the cases in which an individual shall be deemed to have power to enjoy income on what I will call foreign assets. The first case is ifthe income is, in fact, so dealt with by any person as to be calculated, at soma point of time, and whether in the form of income or not, to inure for the benefit of the individual.I want the income to be taxed if it inures, and not if it is calculated at some point of time to inure. "Calculated at some point of time" might be read to mean that the income would not be taken to be enjoyed unless it fell in at some definite time. "Some point of time" is not the same thing as "any point of time." It might mean that you could not tax the income unless it fell in regularly. Suppose an investment was made in a foreign company, which, 718 besides paying dividends, issued a large amount of its profits in bonus shares. It could make those issues at irregular times. It would not be at some definite point of time. Is it not possible that some court might hold that the income represented by these bonus shares was not enjoyed? Might not a judge say, "If you meant to include all income which inures to the benefit of the individual, why did you not say so? Why bring in the factor of calculation and the factor of some point of time?" It seems to me to weaken the Clause, and I believe it will be stronger without it.
§ 7.53 p.m.
§ The ATTORNEY-GENERAL
I think my hon. and gallant Friend may have misunderstood what Sub-section (3) does. It defines what amounts to the enjoyment of income. It is Sub-section (1) which lays down what income is to be taxed. All that this Sub-section does is to define the circumstances in which the individual may be deemed to enjoy the income. We wish to be able to say he has been in fact enjoying the income although the arrangement may be such 719 as to postpone the actual enjoyment of it in the form of bonus shares or otherwise till a year later than the year in which the foreign company in fact receives the income. It was to prevent someone raising the argument that this must be construed as if it were de anno in anno—to prevent someone saying, "You cannot say that this income is inuring to the taxpayer's benefit for the purpose of this Clause because his enjoyment is postponed." I assure my hon. and gallant Friend that the intention is simply to make the Clause clear, but we will of course consider what he has said.
§ Amendment, by leave, withdrawn.
§ 7.56 p.m.
§ Mr. FOOT
I beg to move, in page 13, line 3, to leave out from "section" to "all," in line 5.
It seems to me that the words that I am proposing to leave out raise a rather serious issue in Income Tax law and one on which we ought to have a few words from one or other of the Law Officers. It has always been a principle rigidly observed that tax Statutes should be interpreted strictly against the Crown and in favour of the subject. It appears that that rule of construction would be destroyed, or very greatly weakened, if these words were to be passed into law, because under the wording of the Subsection it is not a question of the application of the known law to ascertained facts, but simply a question of opinion. The words are:regard shall be had to the substantial result and effect of the transfer and any associated operations.The substantial result of the transfer and any associated operations is simply a matter of opinion. That is to say that the adjudication by any tribunal, even the highest, would no longer be a matter of strict law but a matter of opinion, and the taxpayer might find himself penalised even though he had acted all along in strict conformity with the law. It seems to me that rather a doubtful principle is being introduced by these words, and I should like to hear what the Attorney-General has to say upon them.
§ The ATTORNEY-GENERAL
The whole of the subject matter of this Clause is the use of legal forms designed for 720 ordinary commercial and financial purposes for the purpose of tax avoidance, so that what we are dealing with from the outset is someone who is using legal forms such as issues of debentures and, instead of using them for the purpose for which debentures are intended in our industrial system, using them for the purpose of reducing the contributions which my right hon. Friend extracts for national needs. Therefore, it may be that that consideration is one which justifies the insertion of such words as these in a Clause of this kind. It is not necessary to state in detail the cases concerned with Income Tax, but there have been a number of cases in which the courts have said that in Revenue matters you are entitled to look at the substance of the matter and to disregard the legal form. On the other hand, there have been other cases in which the courts have said that you cannot go behind the legal form, and that, therefore, if the legal form points in a certain direction it really concludes the matter. I am not suggesting that those decisions are in any way inconsistent with each other, but their existence makes it important that we should have a provision in the Clause making it quite clear that the commissioners are entitled to look at the substantial result and effect. It is a conception which has already been imported into Income Tax cases, as indicated by the decisions to which I have referred, where judges have said that they were trying to look at the substance of the matter and behind the legal form.
§ The ATTORNEY-GENERAL
No, it has not, and I am explaining that, as there are possibly conflicting decisions, in our view it is necessary in the Income Tax law to make the position quite plain. It is not a question which is a completely new one in Income Tax jurisprudence, because there have been cases in which the courts have said expressly that you are entitled to look at the substance of the matter, and the Committee will not be surprised to hear that the substance of the matter has sometimes assisted the Revenue and sometimes has assisted the taxpayer. I have a, case in mind in which it has been said that, if you should look at the substance of what is done there is no ground upon which the 721 taxpayer should pay the tax which was in question. I recommend the Committee to leave in these words. I believe that they will enable the Special Commissioners to do, without any doubt or challenge, what this House intends and desires they should do, that is, not to be tied by the letter to some legal form which is being used for the purpose for which it was not originally intended, but that they should be entitled to look at the substantial result of the transaction.
§ Amendment negatived.
§ The TEMPORARY CHAIRMAN (Sir C. MacAndrew)
The next Amendment on the Paper in the name of the hon. Gentleman the Member for Chesterfield (Mr. Benson), in page 13, line 11, after "husband," to insert "or son or daughter," is out of order.
§ 8.4 p.m.
§ Mr. LEWIS
I beg to move, in page 13, line 41, to leave out "Income Tax," and to insert "Sur-tax."
The point raised by the Amendment is one of considerable importance, but the issue is a very simple and straightforward one, and should not detain the Committee long. In order to understand the effect of the incorporation of the Amendment in the Bill, it is necessary to read it in conjunction with the next Amendment but one on the Order Paper, which is consequential upon it—in line 42, after the first "and," to insert "for the purpose of assessment to Income Tax for 1936–37 and." If these two Amendments were carried, Sub-section (7) of the Clause would read:The provisions of this Section shall apply for the purposes of assessment to Surtax for the year 1935–36 and for the purpose of assessment to Income Tax for 1936–37 and subsequent years, and shall apply in relation to transfers of assets and associated operations whether carried out before or after the commencement of this Act.The Committee will see that the intention of the Amendment is to make a distinction between the period for which this part of the Bill shall apply to Income Tax and Sur-tax. The object is that, while we seek to get the benefits of the Clause into operation as quickly as possible, we do not wish the legislation to be retrospective. Many of us in this House strongly object to the principle of retrospective legislation. Hon. Members will recollect that the assessment to Surtax always lags a year behind the assess- 722 ment to Income Tax. Therefore, whereas the liability to Income Tax for the year 1935–36 has already been incurred under the existing law, the liability to Sur-tax for that period has not yet been incurred. We suggest that this wording should be adopted in order that the operation of the Clause shall affect Sur-tax for the year 1935–36 and shall not affect Income Tax until the year 1936–37. I hope that the Financial Secretary will see his way to accept the Amendment, because it will have the purpose of removing the sting of retrospective legislation from the legislation in question. If he says that, while he would like to do so, for some reason he does not wish to make this distinction between Income Tax and Sur-tax, I suggest that instead of the proposed Amendment, he should substitute the year 1936–37 for the year 1935–36, which occurs in line 42.
§ 8.8 p.m.
§ Sir A. M. SAMUEL
The only objection that we have to Sub-section (7) is on principle, and not against the Clause itself in any way whatever. We are entirely in favour of the Clause. I, in common with many other hon. Gentlemen on this side of the Committee, think that we ought to put our foot down if any attempt of any kind is made to introduce legislation of a retrospective nature. That is the only reason why my hon. Friend has moved the Amendment, and why we are directing the attention of the Financial Secretary to the matter.
§ 8.9 p.m.
§ Mr. W. S. MORRISON
My hon. Friend the Member for Colchester (Mr. Lewis) has made his point very clear. He has put it upon principle, and he objects to retrospective legislation of any kind. The Amendment leaves out "Income Tax" and inserts "Sur-tax." That is to say, that my hon. Friend would, if he had his way, make the Clause apply only as regards that part of the Income Tax which is the Sur-tax. He anticipated the objection to his Amendment that the Surtax is, in fact, part of the Income Tax. It is that part of the Income Tax which is levied upon incomes above a certain level, namely, £2,000. It is a very difficult proposition to make a Clause of this character apply to one part of the Income Tax and not to the other. The next point I would ask him and the Committee to consider is, that the Clause is 723 designed, as he himself and, indeed, every hon. Member would admit, to try to prevent persons escaping their just burdens of Income Tax and Sur-tax. The Clause itself, of course, affects Sur-tax more than anything else. I would ask my hon. Friend to consider whether there is not a difference, in regard to such small evidence of retrospection as exists in the Clause, between retrospective legislation which imposes a fresh burden upon persons with regard to their past income, and retrospection in the sense of trying to recover that which ex hypothesi ought to have been paid in the past.
§ Sir. A. M. SAMUEL
The Financial Secretary says "ought to have been paid in the past." It has not been said in the past that anything unworthy or illegal has ever been done. The highest courts in the country have said that what has been done in regard to these cases has been legal. Therefore, it is not right, in my opinion, for my hon. and learned Friend to say "ought to have been paid in the past." He might say it if the Clause had been passed, but in the past there has never been any obligation, either moral or legal, to pay.
§ Mr. MORRISON
My hon. Friend, of course, is approaching the matter in a perfectly proper way from the legal standpoint, and I agree with him that many judges in the past have made references of the character he has described to the Committee. But with all respect to that argument, I would say that on the whole this is really the assembly which has the duty of levying taxation upon the people of this country, and that we are entitled to consider the view that it is not the duty of, or a proper thing for, a man to evade the share of taxation which he ought to pay. I put this matter forward on the ground of public policy. It is obvious that, if a man avoids his share of taxation in a case of this character, there is nothing illegal in what he does, but it has the unfortunate result that it causes other people who have not avoided tax to pay a higher standard rate of Income Tax than they otherwise would have paid. It is quite within the competence of this Committee to consider, no matter what other tribunals and other authorities have said, whether this is not a thing which ought to be stopped. Indeed, I think that my hon. Friend him- 724 self agrees with me that it ought to be stopped, but he complains, and with an amount of reason and force which I would not in the least decry, that there is a sense of retrospection in the Clause. Let us see how much there is.
My hon. Friend in putting forward his Amendment, has not fallen into the error that Surtax is in any way retrospective, but he says that, as regard the standard rate, there is some element of retrospection. That is true, but how much? Let the Committee remember that we are dealing with the case of the man who has transferred assets to a company or person abroad. In the ordinary case the things that he has transferred are British securities in one form or another, and in all these cases, with the exception of one or two which I am going to mention, Income Tax has already been deducted at the source. That means that the Exchequer has got the Income Tax, and that there is no more to come. But it may be that he has transferred other assets, either foreign or Dominion securities of certain classes, or certain British securities of a very limited class. That is to say, the 3½ per cent. War Loan, the 4 per cent. Victory Bonds, and the 4 per cent. Funding Loan, which are all British Government securities, with the additional attractive condition attached to them, that Income Tax is not payable on them if they are owned by a person abroad.
We are entitled to ask what was the purpose of this arrangement. It was obviously in order to attract foreign capital to these issues and not to enable people to transfer them abroad for the purpose of avoiding British Income Tax. When one considers that the amount of retrospection involved is confined to that very limited class of security, and that by far the larger majority of assets touched by this Clause have already paid the standard rate of Income Tax and thus are unaffected by the Clause; when one considers retrospection in a case of this kind, where the Exchequer is trying to recover something which Parliament in passing Income Tax legislation clearly intended to recover, and when one further considers the difficulty of dividing that part of the Income Tax which is called Surtax from the whole body of the tax, I cannot advise the Committee to accept my hon. Friend's Amendment.
§ 8.16 p.m.
§ Mr. LEWIS
The Financial Secretary has devoted the greater part of his argument to demonstrating what a slight difference it would make to the Exchequer if the Amendment were carried. In those circumstances I would ask him to reconsider whether for that slight difference it is worth while contravening the principle that legislation should not be retrospective. This is a perfectly clear case of retrospection. It is an alteration in the principles of the Income Tax law and it is proposed to make it applicable in respect of the income of the previous year. I would ask the Financial Secretary, having regard to what he has said about the very slight losses that would be incurred by the revenue, to reconsider his decision.
§ 8.17 p.m.
§ Sir A. M. SAMUEL
The Financial Secretary has told us that in the great majority of cases the Income Tax will have been paid, and therefore the revenue will not suffer by one farthing in regard to that tax. It may suffer a little, but for one year only, in relation to the Surtax. Is it good policy for any party in this House to break the old principle that we do not engage in retrospective legislation. To do that is a bad principle. We support Clause 16, and I have tried to make it stronger. Nothing in the Income Tax will be touched by the Amendment. The only thing that may be lost will be a small amount of Surtax for one year only. Once this year is over the whole discussion becomes nugatory. I would ask the Financial Secretary to reconsider the matter. It is bad policy for any party ever to engage in retrospective legislation of any kind, especially when the amount is so trifling.
§ 8.18 p.m.
§ Mr. LEES-SMITH
I should like to congratulate the Financial Secretary upon one observation. Throughout these Debates there have been laid down a series of dicta from judges. We have been told that they have said that these various methods of avoiding taxation are legal and moral.
§ Mr. LEES-SMITH
In the view of hon. Members on this side of the Committee the opinion of judges on what is legal is one to which we should pay respect, 726 but the opinion of judges as to what is worthy or unworthy, what is good public policy or bad public policy, is not as good as the opinion of this House. We say that these various methods of avoiding taxation by what have been called dodges, tricks and artificial devices, may be legal but they are not good public policy. They are not good citizenship, they are not decent, they are not proper, and I am very glad that we have had from the Government Bench a statement that in the opinion of the Financial Secretary these methods are not proper. I hope that that will be an answer to these various dicta.
§ 8.20 p.m.
§ Sir A. M. SAMUEL
The right hon. Gentleman opposite is flogging a dead horse. He is pushing at an open door. We are not discussing whether it is right to try to evade taxation. We do not take that line. We are here to help the Treasury to deal with those who try to escape taxation; we say that public policy will be served by this Clause, but we protest very much against it being said that anything unworthy has been done by the people who have adopted this particular process. Hon. Members opposite must not forget that the administration of justice in this country is on a very high standard, and when great judges say that in their opinion there is nothing unworthy, nothing immoral, nothing illegal in this, the public surely can act on the fact that those who uphold British justice tell them that nothing wrong has been done. We agree that the Treasury are right in bringing in this Clause, and we support it, but we say that as a principle of Government and as a principle of policy in this House it is a bad thing to embark upon anything of a retrospective nature. For that reason I protest against the tone and the line of the argument adopted by the right hon. Gentleman opposite.
§ Amendment negatived.
§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ 8.24 p.m.
§ Mr. MAXWELL FYFE
There is one point on which I should like information from the Financial Secretary. He referred to the phrase "transfer of assets." Several times he spoke of the transfer 727 of assets from this country to abroad. I am sure that it cannot have escaped the attention of my hon. and learned Friend and those who advise him that there is nothing in the Clause as it stands to limit the word transfer in its meaning. At the present time it may cover the transfer of assets which are abroad and which may be removed from one place to another or from one type of investment to another abroad. The Financial Secretary will appreciate that this may act hardly in perfectly innocent cases. There may be cases where at the present time there is an investment of assets abroad and a transfer may be made which produces the results set out in Sub-section (1). I should welcome, and many of us would welcome a statement in the general interests of the clarity of the Clause and in order to know what is intended, whether it is the intention of the Treasury to strike at all transfers, even in the case of money invested abroad, or whether it is intended to strike at the transfer of assets from this country to abroad and to such transfers only. I hope the Financial Secretary will consider this point, and if he finds that it is unnecessary to go beyond the limited interpretation of transfer which he has put upon it, namely, the transfer of assets from this country to abroad, he will make it clear in a subsequent stage of the Bill.