HC Deb 11 June 1947 vol 438 cc1299-306

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Lieut.-Commander Braithwaite

This is a Clause which has aroused some curiosity and not a little disquiet. It aims at some particular transaction. What concerns us most is the extraordinarily weighty powers contained in it. The Commissioners, as we understand it, are people demanding further payment on taxation notwithstanding that certain matters of liability have been settled, payment made and acceptance acknowledged, in cases where there was joint and several liability under the Finance Act of 1943. It does raise the whole question of retrospective action in connection with tax Clauses. Subsection (3, c) reads: notwithstanding that the payment has been made or accepted or agreed to be accepted or acknowledged to be in discharge of all or any part of the liability of all or any of the persons liable under the original direction under the said section twenty-four, and then it goes on to say … fresh proceedings may be taken for recovering the amount thereof as if that judgment or order had never been made. That is the matter which is causing anxiety on these benches. On the face of it, this Clause gives powers so wide that we feel they ought to be challenged.

Sir H. Lucas-Tooth

As I understand it, this enables the Commissioners to reopen a case where a payment has been made. Under the previous legislation, it has been possible to affect a number of persons with a joint liability in respect of a payment for Profits Tax. May I take a concrete case as an example? Suppose "A," "B," and "C" have been jointly and severally liable to pay what may be a very large sum in respect of profits; say, something of the order of £100,000. Between the three of them, they, in the past, may have paid the whole of that sum, and each of them will then have felt secure that the liability has been discharged and they can go ahead in the expectation that no further call upon them can be made. But, it may be that one of the individuals has been unable to pay the amount demanded. "A" may have been made a bankrupt: in respect of his liability, and have been able to pay only £30,000, and the rest has been provided by "B" and "C," the former paying £50,000, and the latter £20,000.

As I understand it, this will enable the Commissioners at some future date to appropriate the amount that "B" has paid towards this particular obligation in discharge of some other obligations of his to the Commission. Furthermore, as I understand it, it may be that such an obligation has not yet even arisen. In Subsection (2, b), the words used are "or may thereafter." These words are of unlimited application. The Commissioners now, in certain circumstances, can treat the whole of the payments by "A" in respect of this liability of £100,000 as suitable for diversion to some other payment, leaving "B" and "C" to discharge the whole sum so diverted. The effect of that may be that, although "A" was a bankrupt, he may have got his discharge, but he could be made bankrupt a second time in respect of the same indebtedness. I really do not believe that that is the intention of the Government, and I should like an explanation from the learned Solicitor-General as to how that result is avoided. Or if a definite undertaking cannot be given a promise that some provision can be put in to ensure that this kind of thing cannot occur.

4.45 a.m.

The Solicitor-General

May I say one general word about retrospective legislation in the case of the Excess Profits Tax legislation. In the Excess Profits Tax legislation of the Finance (No. 2) Act, 1939, there are in it a great many provisions, and I believe that a great majority of the provisions are retrospective for the whole period during which the tax had been in operation. To give two random examples: there are Section 35 of the 1941 Act, and Section 33 of the 1944 Act. Hon. Members will see that these, together with a large amount of the Excess Profits Tax legislation, go back to the beginning of the Excess Profits Tax period. So that this does no more than the ordinary existing Profits Tax legislation. The Section which it is designed to follow, which is Section 24 of the Finance Act of 1943, also is retrospective. So that this Clause, in the sense that it is retrospective to the beginning of Excess Profits Tax legislation, is simply on a par with other Excess Profits Tax Acts and amending Sections.

The position is one of extreme complexity in this particular case. I will endeavour to give some kind of idea of what we are aiming at in this Clause. If I may use neutral and inoffensive language, the effect of this Clause, and the effect of Section 24 of the 1943 Act, are not entirely unconnected with certain transactions which took place, in respect of which an appeal is pending in the House of Lords on another aspect. I hope the Committee will not ask me to go into great detail. It would not be right for me to do so. Section 24 of the 1943 Act was very drastic, and its terms were wide. Its object was to deal with this kind of thing. A company is dealing in a certain trading stock. It then gets into a position in which a group of persons acquire control of the company. Having acquired that control, those persons obtain possession of the stock, which they sell to outside persons. I am speaking now in general terms, and not with reference to any particular case. I am only giving a general illustration, and if it approximates to a particular case, I hope that hon. Members will put that case out of their minds. I am simply explaining the general position. The group, having obtained control of the trade assets of the company, proceed to sell those assets and so arrange the sale that it does not attract Excess Profits Tax. If that can be done, an enormous profit can be made. [An HON. MEMBER: "Legitimately?"] It can be done in that way legitimately, certainly.

This Clause is designed to follow up on that Section, and to make it impossible to evade its effect as can be done at present, it would seem. Imagine the case where, as a result of a direction under Section 24 of the 1943 Act, persons have been found jointly and severally liable to make good the loss to the Inland Revenue. An order can be made against a company and against the individuals in a group. Suppose the company still has some assets after the group and company find themselves under joint and several liability to make good the loss to revenue. If the company can then be prevailed upon to sell its remaining assets and with the proceeds of the sale to pay up the liability of the group, then the group are discharged from liability. But what has happened is, that the sale by the company has given rise to a further E.P.T. liability, and when the Revenue seek to collect that further Profits Tax liability from the company, the company by that time have disposed of all their assets and have no further assets. It is impossible for the Inland Revenue to collect from the company that further E.P.T. This Clause is to prevent that happening.

What the clause does is to provide for a direction to be given. The second sale of remaining stock has been applied by the company to discharge the joint and several liability imposed as a result of the first sale. Then the direction can say that the satisfaction of this joint and several liability by the proceeds of the second sale should he set aside, and the joint and several liability shall be deemed to be still in existence and the amount which was the result of the second sale and applied by the company to the satisfaction of the joint and several liability can be applied by the Inland Revenue to the satisfaction of E.P.T. liability Which arose upon the second sale. In a word, the Inland Revenue are given the power to disregard the fact that some portion of the second sale was given to the satisfaction of the joint and several liability and to treat it as satisfying the E.P.T. liability arising as the result of the second sale.

That is the object of the Clause and what it does. It is frankly designed to make it impossible to make any diversion which can be described as purely evasive. It is anti-evasive and is necessarily drastic in its terms. There is the same anti-evasive legislation in the 1943 Act and in the Finance (No. 2) Act of 1939. Nothing less than this Clause would be sufficient to stop this type of evasion. At first sight I agree that it is rather frightening to look at, but it has to be drastic.

Colonel Crosthwaite-Eyre

I think that in no part of the Committee would there be any intention of opposing something which would prevent the type of evasion the Solicitor-General has referred to. But surely he has taken out a legal steamroller which might have the most disastrous results if it got out of control. Looking at paragraphs (b) and (c) of Subsection (1), I do not see how anything other than the sale of stock can be justified.

The Solicitor-General

Has the hon. and gallant Member observed that it only relates to E.P.T. liability, and as that has come to an end, the Clause can have only limited application.

Colonel Crosthwaite-Eyre

I thank the hon. and learned Gentleman. If he looks at a later Subsection, he will see just what scope it can have. The word "stock" so far as I am aware, has no special definition in this Clause and can apply to any stock held. It seems much too wide, particularly when it has been said that this Clause is designed for a very small section of people who have been guilty of evasion. Under paragraph (c) one gets exactly the same sort of wide power.

If one goes on to the next stage, Clause (3), I have not heard a convincing reason why the right hon. and learned Gentleman wants paragraph (a) of Subsection (3): Whether or not the person who made the payment is one of the persons subject to the original joint and several liability imposed under section twenty-four. That is one of the most sweeping of phrases to put in a Bill; it means the Treasury can do exactly what they like. They can, in fact, spread their net so wide that if in their opinion someone has been guilty of evasion, or is suspected of being guilty of evasion, he can be brought into the ambit of this. It is further emphasized in paragraph (b) that money can be taxed by direction of the Commissioners whether it has come from any particular transaction or not. Whether a person is responsible or not, it can simply be swept in and held under Subsection (2) (c) by the Commissioners for any length of time for any purpose they may care. It seems to be so completely beyond any equivalent measure we have been asked to pass that I cannot see why it is justified.

I ask the hon. and learned Gentleman if he thinks it fair to ask the Committee to make it possible for a judgment of any court to be set aside. The Solicitor-General is taking to himself the power to upset any of these judgments at any time that the Treasury may so desire. Finally, the hon. and learned Gentleman has said that these things are retrospective, like so many of these other measures of E.P.T., but what he did not say was that it goes for an unlimited period into the future. The more I look at this Clause, the more it seems to be drafted in such a fashion that wherever E.P.T. liabilities are concerned, it is possible for the Treasury to reopen any case, or any transaction in which, in their opinion, a case is likely to arise. It is not fair, particularly at five o'clock in the morning, to ask the Committee to pass such a sweeping measure without far more detailed justification. If it is merely some all-embracing measure to stop any evasion, it is wrong and is open to too much abuse. We on this side have just as much interest as hon. Members opposite in stopping evasion, but we want to stop evasion and not to pass some blanket measure which will cause incalculable trouble.

5.0 a.m.

The Solicitor-General

This is nothing like as wide as the hon. Member suggests. It is limited to a very few people. One Subsection deals with a case where a company has gone into liquidation, and the Inland Revenue are entitled to have regard to the tax which the company would have to pay had it not avoided doing so by going into liquidation.

Sir H. Lucas-Tooth

I appreciate that the effect of the Clause is limited, but I am not certain about how far. Can the Solicitor-General give me an assurance that it would not include anyone who had not been a conspirator in the transaction—in other words, an assurance that no innocent party who had found himself left with this liability could be attacked a second time?

Colonel Crosthwaite-Eyre

The hon. and learned Member gave me a very short

answer. I am not a lawyer, and was not able to construe it with lightning rapidity. Can he explain why it only refers to a company in liquidation?

Question put, "That the Clause stand part of the Bill."

The Committee divided Ayes, 128; Noes, 43.

Division No. 252.] AYES. [5.3 a.m.
Adams, W. T. (Hammersmith, South) Holmes, H E. (Hemsworth) Rogers, G. H. R.
Anderson, A. (Motherwell) House, G. Ross, William (Kilmarnock)
Attewell, H. C. Hoy, J. Royle, C.
Austin, H. Lewis Hughes, H. D. (W'lverh'pton, W.) Sargood, R.
Barton, C. Janner, B. Segal, Dr. S.
Berry, H. Jones, D. T (Hartlepools) Sharp, Granville
Beswick, F. Jones, Elwyn (Plaistow) Shawcross, C. N. (Widnes)
Blackburn, A. R Keenan, W. Simmons, C. J.
Blyton, W. R. Kinley, J. Skinnard, F. W.
Bramall, E. A. Lang, G. Snow, Capt. J. W.
Brook, D. (Halifax) Lee, Miss J. (Cannock) Sorensen, R. W.
Brown, George (Belper) Levy, B. W. Soskice, Maj. Sir F.
Champion, A J. Lewis, A. W. J. (Upton) Swingler, S.
Collindridge, F, Lipton, Lt.-Col. M. Symonds, A. L.
Corbet, Mrs. F. K. (Camb'well, N.W) Logan, D. G. Taylor, H. B. (Mansfield)
Corlett, Dr. J. McAllister, G. Taylor, R. J. (Morpeth)
Daines, P. Mack, J. D. Taylor, Dr. S. (Barnet)
Dalton, Rt. Hon. H. McKay, J. (Wallsend) Thomas, D. E. (Aberdare)
Davies, Ernest (Enfield) McKinlay, A. S. Thomas, George (Cardiff)
Davies, Harold (Leek) McLeavy, F. Timmons, J.
Deer, G. Manning, C. (Camberwell, N.) Tolley, L
Delargy, H. J. Mellish, R. J. Ungoed-Thomas, L.
Diamond, J. Middleton, Mrs. L. Usborne, Henry
Dodds, N. N. Mikardo, Ian Wallace, G. D. (Chislehurst)
Driberg, T. E. N., Millington, Wing-Comdr. E. R. Wallace, H. W (Walthamstow, E.)
Ede, Rt. Hon. J. C. Mitchison, G. R. Watson, W M
Farthing, W. J. Monslow, W. Weitzman, D
Fernyhough, E. Morris, P. (Swansea, W.) Wells, P. L. (Faversham)
Foot, M M. Moyle, A. Wells, W. T. (Walsall)
Forman, J. C. Neal, H. (Claycross) West, D. G.
Freeman, Peter (Newport) Noel-Buxton, Lady White, H. (Derbyshire, N E.)
Gallacher, W. Oliver, G. H. Whiteley, Rt. Hon. W.
Gibbins, J. Paling, Will T. (Dewsbury) Willey, F T (Sunderland)
Gilzean, A. Pargiter, G. A. Willey, O. G. (Cleveland)
Glanville, J. E. (Consett) Pearson, A. Williams, D. J. (Neath)
Greenwood, A. W. J. (Heywood) Peart, Thomas F. Williams, J. (Kelvingrove)
Sunter, R. J. Popplewell, E. Williams, W R. (Heston)
Guy, W. H. Pritt, D. N. Willis, E.
Hall, W. G. Proctor, W. T Wills, Mrs E. A.
Hannan, W. (Maryhill) Pryde, D. J. Woods, G. S
Harrison, J. Ranger, J
Hewitson, Capt. M. Rankin, J. TELLERS FOR THE AYES:
Hobson, C. R. Roberts, Goronwy (Caernarvonshire) Mr. Joseph Henderson and
Holman, P. Robertson, J. J. (Berwick) Mr. Michael Stewart.
Assheton, Rt. Hon. R. Eccles, D. M. Pitman, I. J.
Baldwin, A. E. Fox, Sir G. Prior-Palmer, Brig. O
Beamish, Mai. T. V H Fraser, Sir I (Lonsdale) Ropner, Col. L.
Birch, Nigel Galbraith, Cmdr T. D Shephard, S. (Newark)
Bossom, A. C. Haughton, S G. Spence, H. R.
Bower, N. Henderson, John (Cathcart) Stanley, Rt. Hon. O.
Bracken, Rt. Hon. Brendan Jarvis, Sir J. Strauss, H. G. (English Universities)
Braithwaite, Lt.-Comdr. J. G. Joynson-Hicks, Hon. L. W Stuart. Rt. Hon. J (Moray)
Buchan-Hepburn, P. G. T Lambert, Hon. G. Thorp, Lt.-Col. R. A. F.
Clarke, Col. R. S Lucas-Tooth, Sir H Wadsworth, G
Conant, Maj. R. J. E. Marples, A. E. Wheatley, Colonel M. J
Crookshank, Capt. Rt. Hon. H. F. C Marshall, D. (Bodmin) York, C.
Crosthwaite-Eyre, Col. O. E Mellor, Sir J.
Cuthbert, W. N. Molson, A. H. E. TELLERS FOR THE NOES:
Drewe, C. Morrison, Maj. J. G (Salisbury) Mr. Studholme and
Major Ramsay.