EXCESS PROFITS TAX (Hansard, 2 May 1944)

§ The Attorney-General

It may be for the convenience of the House if I give a short description of what is intended to be done under this Resolution. When the Excess Profits Tax was introduced, the problem of possible tax evasion had to be faced, and, in the Finance Act of 1941, as presented to the House, there was a provision that, if one of the purposes of a transaction was tax evasion or tax diminution, the Commissioners of Inland Revenue could, in effect, treat it as if it had not been done. It was pointed out with considerable force, in many quarters of the House that those words may effect great hardship, and that there were a number of transactions which were perfectly legitimate and, very likely, ought to be encouraged, but which would result in a certain diminution of the tax to be paid. Therefore, the words were altered to "the main purpose," but the Chancellor of the day gave a very clear warning to the Committee that, if that alteration of phrase proved ineffective, he would come back to the House and ask that the Clause should be strengthened retrospectively in order to prevent evasion of Excess Profits Tax. That did, unfortunately, arise.

There have been a number of cases. I will not detail them at this stage, but, if I did, I am sure that the House would realise that they were evasion cases, some of them rather gross cases, such as a boy of fifteen being made a director and given a percentage of shares, in order to get the allowance of a working proprietor. The difficulty in the words "the main purpose" has been that evidence has come in of people saying "We did not think about Excess Profits Tax and there is some other reason." It is, of course, difficult for the Revenue Commissioners to produce counter-evidence, or for the Commissioners to say, in some cases, "We are satisfied that this was the main purpose." What my hon. Friend proposes is to strengthen the working of the Clause by words of this kind so that it must be shown to be one of the main purposes. It is not necessary to show that it is the main purpose, but it should 1245 be shown that it was one of the main purposes, and I think provision may also be made that, if it is found that there is a substantial diminution in the amount of E.P.T. to be paid, that can be taken into account in deciding the question. Those are the lines on which the Chancellor desires to proceed, and that is the reason why we are asking the House to pass this Resolution.

§ Mr. Benson

I think this is the second time on which the Government have fallen down on this question of "main purpose." I think I am right in saying that I was not one of those who was afraid of the dangers of hardship. On the contrary, I think I pointed out at the time that we had already been compelled, in the steps we had taken, to prevent tax avoidance to change the wording "main purpose" when it related to transfer of assets abroad. I think, first of all, there were, in the Clause dealing with the transfer of assets abroad, the words "main purpose," and one hon. Gentleman got away with it on the ground that the main purpose of transferring assets abroad was because he was afraid of the Labour Party. It was found, again, that it is very difficult to assess motives when somebody says he never thought of tax avoidance or evasion. Motive is impossible to prove. I shall be very pleased indeed to see this Clause in the Finance Bill, but I am not at all certain, from what the Attorney-General said, that there is going to be a very great deal of improvement. I think when you start introducing questions of motive and purpose, you are on very slippery ground, and I hope that, in the Finance Bill discussions the right hon. Gentleman will fortify himself with examples of what has been done in this question of purpose when it came before a court of law.