HC Deb 01 July 1941 vol 372 cc1272-9
Mr. Denman

I beg to move, in page 30, line 33, at the end, to insert "main"

The Clause to which we now come was subject to discussion both on Second Reading and in Committee. With the purposes of the Clause there was, I think, general agreement that the tax dodger, whom we wish to restrain, was adequately dealt with. At the same time it was felt there would be included a large number of wholly innocent persons—not only were we rounding up the goats, but we were also rounding up a large number of wholly inoffensive sheep—and that in fact, when it came to actual administration, the Commissioners would not be able to make adjustments of the assessment merely because the reduction of liability was among the purposes of the transaction but would have to consider whether the transaction was a tax-dodging device, and in fairness to the sheep it was right that the Clause should contain the real criterion on which the Commissioners had to decide. It was accordingly moved in Committee that the offence should be described as an improper avoidance of liability to taxation. That met with the objection of the lawyers that to them it had no meaning, that no court could possibly hold that that which was technically lawful was improper, and that therefore the Amendment would completely destroy the whole purpose of the Clause.

That was frankly disappointing, but the lawyers were adamant, and there was nothing to do but try again. A lawyer friend advised me that the word "main" would really provide the key to the difficulty and that, if we described the offence in these terms, that the main purpose for which the transaction was effected was the avoidance or the reduction of liability, we should effect what the Revenue wanted and at the same time satisfy the requirements of the law. I was a little doubtful whether that was not going too far and whether, while we satisfied the need for excluding the sheep from the ambit of the Clause, we were not at the same time allowing some of the goats to escape, but after further consideration I think my legal friend was right and that in fact the Commissioners would not attempt to revise adjustments unless the main purpose of the transaction were the avoidance of liability and, further, that the Clause as amended will satisfy the requirement that the Solicitor-General wisely drew our attention to, the requirement that the Clause should act as a deterrent and that it would not in fact be frequently utilised at all, that it would be so alarming that it would effectively prevent the tax-dodger from trying his dodges, and that it would be so discouraging to the breed of goats as to act as an effective method of birth control.

I hope my legal friend was right, and it is in the belief that he was that I move this Amendment, because I think I am here to present the common view of all parties that we are determined to put an end to this tiresome business of tax dodging. It is a weariness to us year after year to have to try to find fresh words to meet some fresh ingenuity of this tax-dodging fraternity. As a people we are exceedingly good taxpayers, and it is really monstrous that the Revenue, and the good taxpayer, should suffer from a minority of blacklegs, because that is what this tax dodging amounts to. I hope the Clause as amended will achieve that object, and I hope this will be the last time that we shall be required to change these words. I believe we have, with the co-operative assistance of the House in the various stages of the Bill, reached a final form of words which should be adequate for the purpose we have at heart.

Sir R. Clarry

I beg to second the Amendment.

It is in the nature of a compromise. We think it desirable that the words should be made precise as to whether anyone is doing anything illegal or not, and at present it is left to opinion to say that transactions are taking place innocently which may ultimately be quite illegal. That appears to me to be wrong.

Mr. Benson

I am afraid the memories of the Mover and Seconder and of the legal gentleman whom they consulted are extremely short. This discussion is merely an echo of those which took place on the Finance Bills of 1936 and 1938. I do not know whether the Mover has gone back to the Bill of 1936 to find a common form, but the words of the Amendment are taken directly from those Bills in the Clauses dealing with the transfer of assets abroad. The Chancellor in 1936 attempted to stop the avoidance of Surtax by the transfer of assets abroad and chose the words which the hon. Member is trying to insert, that the taxpayer was allowed to transfer his assets if he could show that the transfer took place mainly for some purpose other than the purpose of avoiding taxation. The use of the word "mainly" in that Bill is identical with its use here.

Mr. Denman

It was left to the Commissioners to decide whether in their opinion that was so.

Mr. Benson

Certainly it was. How else could they decide whether the transfer had taken place mainly or solely or without any reference to the purpose of avoiding taxation? As soon as you introduce purpose, there is no proof. It must be a decision of opinion, and it was left to the opinion of the Commissioners as to whether the transfer was made for the purpose, mainly or not mainly, of avoiding taxation. What happened was that the word "mainly," instead of being the key to the difficulty, was the key to the stable door. It completely vitiated the effect of the tax. I remember Lord Simon in 1938 giving an example of the motives alleged for the transfer of assets abroad. One gentleman transferred them, not for the purpose of avoiding tax, even mainly, but because he alleged that he was afraid of the Labour party becoming the Government of the country, and he got away with it. The explanation was regarded as adequate. Two years later the Board of Inland Revenue were compelled to get rid of the word "mainly," and they choose exactly the words that are in this Clause. We have two forms of words, one of which has been tried and found wanting and after two years had to be amended, and the other which has stood the test of time. The hon. Member moves to leave those out and to insert words which have proved ineffective.

Mr. Spens (Ashford)

The hon. Member's comparison is not adequate. The Clause in the old Act Was mainly for a purpose other than that of evading taxation. Here the test is whether we ought to include the word "main," where what the Commissioners have to find is whether a transaction is mainly for the purpose of avoiding taxation or not, a different question altogether and one which in my view is essential.

Mr. Benson

Of the two phrases which the hon. and learned Gentleman has quoted, surely one is merely a negative statement while the other is positive. In the phrases "mainly for the purpose" and "mainly other than" is not the operative word "mainly"?

Mr. Spens

The question whether it is done mainly for the purpose of avoiding taxation or mainly for some purpose other than avoiding taxation opens two different spheres of inquiry. As the Clause is working at the present time, in every transaction which in fact produces Excess Profits Tax, it is very difficult to say whether or not one of the purposes of the transaction may not have been the reduction of taxation. Supposing the hon. Member were the adviser of a board of directors and he said to them, "This is a magnificent thing to do, it is in the national interest, it is in everybody's interest, but I have to point out that if you do it you will, in fact, reduce your E.P.T. by £100"If that is mentioned to the Board then it is postulated that one of the purposes which some of the Board may have had in mind may not have been the saving of that £100 per annum. We do not want that. We want to stop tax dodging, we want to stop people from entering into a transaction mainly for the purpose of avoiding taxation. Therefore, I hope that the House will see that really the two Clauses are not comparable and that the Amendment put forward is one which is in the interests which all of us have in mind.

Sir K. Wood

I have naturally paid a good deal of attention to the proposal made by my hon. Friend. I was, of course, conscious when I introduced this Clause that it was of a very extensive nature, and that it might well be thought that, as it was then worded, it might hit certain transactions which generally speaking could not be objected to, and that difficulties might arise, but in the circumstances that were brought to my knowledge I did feel that a Clause of this character was necessary. My hon. Friend put down his Amendment and, as anticipated, my hon. Friend opposite, who has a great deal of knowledge of these affairs, recalls what happened in 1936. Before deciding what I would do about the Amendment I examined, with my advisers, the position as it is under Section 18 of the Finance Act, 1936. I think it is right to say that that Section deals with one limited type of transaction, namely, the transfer of assets abroad. Moreover, it should be pointed out that it was accompanied by a special saving in respect of commercial transactions. It was expressly provided that the Section would not apply in the case of bona fide commercial transactions unless it could be shown that they had been devised for the purpose of avoiding liability to taxation.

Therefore, I think it can be said that in applying the principle to the Excess Profits Tax area we are following along the lines laid down in the Finance Act, 1938. If a transaction is designed for the purpose of avoiding taxation then such transaction is really one which has the avoidance of tax as its main purpose. Finally, it has to be borne in mind that the assessing authorities for Excess Profits Tax are the Commissioners of Inland Revenue, and while they are not likely to attempt to apply the avoidance powers of Clause 30 to innocent trading trans- actions they are equally not likely to allow to pass unchallenged any case in which the avoidance of taxation and not genuine business is the governing motive. I consulted my two right hon. and learned Friends the law officers, and they did not hold that I should be justified in refusing to accept the Amendment. If I find that acceptance of the Amendment would destroy the object of the Clause I shall have to take another course. I therefore accept the Amendment to-day with the warning that I may have to come back to the House and ask it to reverse its decision.

Amendment agreed to.

Further Amendment made: In page 30, line 34, leave out "or one of the purposes" — [Mr. Denman.]

Mr. Craven-Ellis

I beg to move, in page 31, line 6, to leave out "Board of Referees," and to insert," Special Commissioners"

In putting forward this Amendment I do not wish to pass any reflection upon the Board of Referees. I only want cases to be decided by a body in which industry has greater confidence. The Board of Referees is composed of business men. Under the chairman is a panel called upon to hear cases from time to time. It is unreasonable to expect that they will be expert in their knowledge of all matters which will come within this Clause. Let me give one or two cases. Take the case of a company which decides that, during the war, it will not make any profit but will supply the Government with their requirements at cost price. Under the Clause, the Commissioners would have the right to say that that decision was an evasion of E.P.T. although the company had supplied the Government with their requirements at cost. The Commissioners could certify that the company was subject to E.P.T. In the case of the one-man company, let us take the man who has spent some years in developing his business until it has reached the stage of earning a profit. This man decides to bring in two, three or four of his friends as co-directors. Under the Finance Bill of 1940, the statutory level of tax would be £1,500 a year, but if he put three more directors on his board, the statutory level would be £6,000. Are the Commissioners to be allowed to say that by putting three extra directors on the board the company was evading E.P.T.? We must have experts to decide cases like those, and for that reason I suggest my Amendment.

Mr. Spens

I beg to second the Amendment.

I do so in very much the same frame of mind toward the Board of Referees as my hon. Friend who moved it. I do not think anyone will take the view that there is much objection to this Amendment, in order to meet a rather difficult situation arising in war-time. It is a matter of convenience. A body which is almost permanently in session, is always get-at-able and sits all. over the country is more convenient than the Board of Referees, which sits from time to time and requires a certain amount of time to convene.

Sir K. Wood

I was glad to hear the mover and seconder agree on the subject of the Board of Referees, who have a high reputation, and do their work with satisfaction to everybody. I am inclined to accept the Amendment for the reasons that have been stated. In war-time there is something to be said for it.

Amendment agreed to.

Sir K. Wood

I beg to move, in page 31, line 6, at the end, to insert: whether on the ground that the purpose of the transaction or transactions was not or did not include the avoidance or reduction of liability to tax or on the ground that no direction ought to have been given or that the adjustments directed to be made are inappropriate The purpose of this Amendment is to make clear the powers of the Special Commissioners and that it will be open to them to consider the matter quite afresh and apart from any other considerations or decisions that might have been come to. That has always been the intention of the Clause, but it has been pointed out to me that there might be doubts, and I want to make the matter perfectly plain.

Question proposed, "That those words be there inserted in the Bill"

Amendments to the proposed Amendment made:

In line I, after the second "the," insert "main"

In line 2, leave out "or did not include" —[Mr. Denman.]

Amendment, as amended, agreed to.