There shall be added to paragraph so of Part I of the Seventh Schedule to the Finance (No. 2) Act, 1939, as amended by Subsection (5) of Section thirty-three of the Finance Act, 1940, the following subparagraph:
(3) Any person who is dissatisfied with a decision of the Commissioners under this paragraph may appeal to the board of referees."—[Major Gates.]
§ Brought up, and read the First time.455
§ Major Gates
I beg to move, "That the Clause be read a Second time."
I am seeking the indulgence of the Chancellor in putting forward this new Clause, because my hon. Friend the Member for Stockport (Sir A. Gridley) had hoped to be here to move it himself, and I have only my recollections of talks with my hon. Friend to guide me in this matter. This Clause and the one that follows deal with the discretion of the Commissioners. We feel that in the paragraph referred to it is too limited. I wanted to put down a Clause widening their discretion, but it was finally decided to try to get the Chancellor to agree to a Clause giving a right of appeal to the Board of Referees. The sort of trouble that the Clause seeks to correct, if I may give an example, is the case of a company which was director-controlled before the war, but which is not controlled in the E.P.T. period. It usually has the directors' remuneration disallowed as if it were controlled, but the percentage on extra capital is reduced from 8 to 6 per cent. The company is therefore treated as director-controlled as far as the directors' remuneration is concerned and as non-director-controlled as far as the percentage on new capital is concerned. The Revenue thus has the best of both worlds. That is what the discretion of the Commissioners amounts to. And as it can be exercised either way sympathetically or harshly it was felt that it was only just and equitable that power should be given to the taxpayer to appeal to the Board of Referees.
Another example of what we are trying to get at is a company which was not controlled pre-war but is director-controlled in the E.P.T. period and has its standard reduced by deducting the directors' salaries, and its E.P.T. profit increased by adding those salaries. Here the discretion of the Commissioners is limited although they may give a countervailing advantage by the extra 2 per cent. which is allowed on increased capital. But there may be little or no increased capital so the 2 per cent. may be inadequate to cover the difference, and thus the discretion of the Commissioners is inadequate and not wide enough. So if the alternative of giving the Commissioners wider discretion is not taken it seems only fair that the taxpayer should have a right of appeal to the Board of Referees.
§ Sir Arnold Gridley (Stockport)
I do not think there is much that I need add after the very clear way in which my hon. and gallant Friend has moved the Clause. There is a wide desire to have the right to bring the decision of the Commissioners before the Board of Referees, and I think I might ask the Chancellor to be accommodating to us, because all we are asking for is that greater discretion should be given to the consideration of these questions and that, where injustice is felt, those aggrieved should have the right to go from the bureaucratic decision of the Commissioners to a Board of Referees, which, after all, has its justification and its being for the purpose of dealing with matters of this kind.
§ The Attorney-General
The general topic of the right of appeal from the Commissioners to the Board of Referees was discussed on the Finance Bill last year, and it was then pointed out that, in dealing with Excess Profits Tax, there are a number of cases, of which this is one, where you require to make adjustments to fit the particular facts of each case, adjustments which may depend on the amount of capital in the business and various other matters which do not arise in the case of Income Tax where you can apply a rigid code and express it in words. I was interested when the Mover said he and his friends had considered whether they should ask that the Commissioners should have a wider discretion or whether they should ask that there should be a right of appeal. That is interesting, because the Commissioners have frequently been pressed by those who are affected by this tax to take a wider discretion than they have at present to enable them to deal with special cases. The difficulty about an appeal is that, if you are going to have a right of appeal to a Board of Referees, you have to lay down a definite code of principles which they as a judicial tribunal, can apply. I believe on the whole, although of course the Commissioners' decisions have not given universal satisfaction, there has been no general complaint as to the extent of their discretion and, taking into account that if you have to decide something, you can never wholly please the people who come before you, I think they have not done too badly. I should have thought the subject matter of this Clause was a pretty good example of where it would be very difficult to formulate a general code. I do not 457 want to be too technical or to go into too much detail, even if I were capable of it, which I very much doubt, but one of the cases which would arise under the Clause is where a company was director-controlled in the standard period and not director-controlled in the chargeable period, or vice versa. There, it is right and proper and necessary that adjustments should be made.
We have to take into account such facts as, for instance, when the company was not director-controlled, what director's remuneration could be deducted and what was included in that remuneration, whether it to some extent, as sometimes happens, included an element of share of profits as well as remuneration limited to the directors' duties. We then get questions as to changes in the capital structure of the company between the two periods. It is for reasons such as these, which I will not attempt to elaborate, that last year the House decided—and I think the House as a whole accepted it after argument—not to give a right of appeal to the Board of Referees, not out of any disrespect to the Board, but simply because if we were to give this right we would have to formulate the code which the Board should apply.
Therefore, I am afraid we cannot advise the Committee to accept this new Clause. Whether it will satisfy my hon. Friends or not I do not know, but all we can say to them to-day is that if they think the 2 per cent. is inadequate or the use which is made of the discretion under Section 33 (5) (2) of the Finance Act, 1940, is not being exercised fairly, and if they know of a particular case or any class of cases which give grounds for reconsidering the matter, representations can of course be made to the Commissioners that they should use their discretion somewhat differently from the way in which they have been using it and so forth. We think it would be quite impracticable, however, to formulate a code to deal with this class of case, as with the others, and therefore an appeal to the Board of Referees is an impracticable solution.
§ Major Gates
I find-myself in a personal quandary, because I have been listening to my right hon. and learned Friend very carefully to see on which side he was coming down as between my hon. Friend the Member for Stockport (Sir A. Gridley) and myself. It rather seemed that if this new Clause had been changed 458 to give slightly wider discretionary powers to the Commissioners, we might have had a more favourable reply. I understand the reply to mean that the Commissioners, after the statement we have just heard, will give the broadest interpretation to their discretion. In these circumstances I beg to ask leave to withdraw the new Clause.
§ Motion and Clause, by leave, withdrawn.