HC Deb 02 July 1951 vol 489 cc2071-99
Mr. Selwyn Lloyd

I beg to move, in page 27, line 8, at the end, to insert: and (c) the price at which the property is sold is not reasonable in all the circumstances. We have now come to an Amendment to an extremely important Clause which was hardly considered at all during the Committee stage. All we had from the Government with regard to this Clause was about one and a half columns in HANSARD from the Attorney-General. I submit to the right hon. and learned Gentleman that this is not really a legal matter at all. It is a Clause which affects a great deal of our trade and our commerce and our industrial undertakings with subsidiaries overseas.

As hon. Members will be aware, the Clause deals with sales between associated persons and, after defining those associated persons, it goes on to state that if the transaction takes place at a price less than the price which it might have been expected to fetch if the parties to the transaction had been independent persons dealing at arm's length, then, in computing the income, profits or losses of the seller for income tax and profits tax purposes, the like consequences shall ensue as would have ensued if the property had been sold for the price which it would have fetched if the transaction had been a transaction between independent persons … dealing at arm's length. That is the general purport of the Clause.

I gather that the object of the Clause is to catch some cases where, for deliberate purposes of tax evasion or tax avoidance, transactions have been artificially altered so as to achieve that purpose. I imagine it is not intended to bring within the compass of this Clause ordinary commercial transactions. If that is the case, it seems to me a great pity that the Government have not sought to define in more precise terms what they are seeking to hit. Far from a sprat to catch a mackerel, here they have thrown in a whale to catch a sprat. The difficulty and danger involved in this Clause are very great indeed to employment and trade in this country.

The Amendment I am moving seeks to insert a qualification. In other words, it seeks to say that the only circumstances in which the Treasury or the Revenue Department can interfere with these transactions is if the price at which they are conducted is … not reasonable in all the circumstances. I should have thought that that was a very moderate means of attempting to improve what I consider to be a bad Clause. In other words, it is only if the transaction takes place at an unreasonable price that the Revenue can readjust it in the way described.

The reason why we seek to make that alteration is this. There are two practical consequences to the Government's proposal. The first is an administrative one. I heard the other day of a case of a company which carries on, with one of its subsidiaries, something like 300 transactions a day. Is it seriously to be expected that the Revenue will re-assess each of those transactions as if they had been transactions between persons dealing at arm's length? Where will the staff come from? How can it be done without a great deal of time and trouble and inconvenience and without involving the company in setting up its own sub-department to deal with the Revenue over the resettlement or readjustment of these transactions? In that class of case it is an administrative absurdity to seek to put a Clause like this before the House.

The other class of case is where a company in this country is part of a group of companies perhaps with its parent company in America and subsidiaries in the Dominions and foreign countries. I gave an example of a large concern with an American parent company and subsidiaries in this country and in various other countries. Everything has been on a cost basis between the various groups of companies, and that involves the company in this country getting materials and prototypes and such things at cost price—this was very beneficial to this country as the transactions were in dollars—and then its products went to the other subsidiaries at cost price. That gave employment to the company in this country.

If the Clause retains the effect which it has at present, the work will not come to the subsidiary in this country but will go straight from the parent company in America to the subsidiaries in other countries. The group will not stand for the administrative complications of having all these transactions reassessed and readjusted, and work and employment will be lost to the company concerned and to its workpeople in this country. Surely the Government cannot desire that sort of thing to happen.

I believe that the two instances which I have given can be multiplied many times. It seems utterly wrong, in order to catch an occasional case of deliberate tax evasion, to add this Clause which will catch all types of transactions of the nature described however much they may be bona fide, however much they may be in the ordinary course of business and however innocent they may be. It will do very serious damage to our trade and industry and employment in this country. It is a Clause which we had no chance of discussing in Committee except for a very short time in very general terms, and I beg the Attorney-General to accept the Amendment.

Even so, the Clause will remain a bad one, but it will be very much better and will provide some chance of giving an inducement to the companies concerned to retain their business and employment in this country, and it will do something to reduce the enormous administrative task which will fall on the parent companies in this country dealing with subsidiaries overseas. This is a theme which deserves treatment at much greater length because it is of very great importance, but as the hour is late I content myself with what I have said.

11.45 p.m.

Mr. Eccles

I beg to second the Amendment.

My hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) is perfectly right: the Clause is so bad that even with this Amendment it cannot be made a workable and satisfactory piece of legislation. When one thinks what an enormous number of transactions take place between firms inside this country and associated firms outside this country, the proportion of those transactions which are done for the purpose of avoiding tax must be infinitely less than one per thousand. Why did not the Government state exactly what kind of transaction they were after and draft a Clause to catch that kind of transaction?

We were brought up on the old doctrine that if one of the sheep strayed from the fold the right thing to do was to drop everything else and go out after him and bring him home. But modern Socialism completely reverses the ancient doctrine. The practice of right hon. Gentlemen opposite is to punish the 99 good sheep simply in order to try to catch the one black deviationist.

This is thoroughly bad for the conduct of British business. I believe that the only class of transaction the Government are after is the one-man property company; the company where someone builds a house costing, say, £1,000 and then sells it to another company with which he is associated at cost price and, after a short time, that other company sells it at a profit. If the buying company is allowed to treat it as a capital asset, no tax is payable on the profit when the house is finally sold. I believe that to be the only serious class of transaction aimed at by this enormous Clause which brings within its ambit every single sale between associated companies here and overseas.

Like my hon. and learned Friend, I should like to impress the seriousness of this upon the House by giving a number of examples, but the time is late. I want, therefore, to remind the House that my right hon. Friend the Member for Aldershot (Mr. Lyttelton) during the Committee stage, speaking from the experience of his own business, showed how exceedingly difficult it will be to say what exactly should be the arm's length price of, say, spare parts for heavy electrical machinery which he is supplying to India and other markets.

It is not possible for the Treasury to set up as a judge of what two associated companies should charge when one is making capital plant for another. Take the case of a company which makes lathes and is also interested in a number of garages. It makes a lathe for £100, the market price of which will be £150, but for reasons of inter-company structure it sells the lathe at cost price to one of le garages. What is to happen then? Is the Treasury to come along and revalue the price at which the manufacturing company made the lathe and say, "You ought to pay tax on £50," or would it put it at £35 or £40? It is an absurd Clause to have brought before this House.

I want to ask one final question of the Government. Whom did they consult in trade and industry before they put this Clause into the Bill? I wonder, for instance, did they go anywhere near the Dollar Export Board? What sort of advice did they get from people such as that board who are trying to establish British goods in a new market? Did they inquire how often a company sells goods cheap to its American subsidiary in order to find the dollars to pay for advertising when it is breaking into the American market? My information is that no sort of consultation with industry took place, and I wish to be corrected if I am wrong. But if that is so, it is serious.

I can only explain it in this way: the Government are run by civil servants. This Clause must have been brought into the Bill because the Revenue civil servants, looking at their departmental responsibilities through narrow blinkers, said, "You need this power in order to deal with certain cases, of which we are aware, where men have sold goods not at arm's length." From their narrow departmental point of view they may be right; I think that perhaps they are. But why have we Ministers? We have Ministers to point out that there are wider considerations; and throughout this Bill I have got the impression that the Government is being run by civil servants, with none of that Ministerial control necessary to keep experts in their place.

The Attorney-General

As both Members have said, this Clause was not very fully discussed during the Committee stage of the Bill, but that, I think, was by mutual consent of both sides. For that reason, right hon. and hon. Members may not be very fully aware of the purpose of the Clause, which really has to give effect from our point of view to provisions contained in our double taxation agreements.

These agreements go back to the League of Nations' Model Double Taxation Convention, which was made in 1945, and they are based on the outlines of that Convention. That model provides that the agreements entered into may enable one country, when one of its own nationals diverts profits to another country, to tax that national on those profits. When I say "diverts," perhaps I should explain to the House that I mean by that carrying out some transaction, or doing something as described in this Clause—sales to an overseas subsidiary at cost, or something of that sort.

Under these circumstances, instead of making a profit, as it would if it sold at the arm's length price, a company sells at cost and makes no profit. In that sense, it diverts profit to some other country; but under the double taxation agreements the country of residence of the national who diverts the profit can levy taxation on that profit. For example, in the case of our double taxation agreement with the United States, the latter may tax American companies which divert profit to this country; and so, it is perfectly reasonable that we, in a similar set of circumstances, should be able to tax a company on the profits it diverts abroad.

The double taxation agreements were entered into under Section 51 of the Finance (No. 2) Act, 1945, and it was thought that they were within the four corners of that Section. But doubts arose as to whether that was so, and the Treasury was advised that Section 51 of that Act was inappropriate for the purpose. All that this Clause is really doing, and is designed to do, is to make the law what it was thought to be in respect of the double taxation agreements entered into.

Our double taxation agreements, I think in every case, contain in effect what this Clause now seeks to make law. Strictly speaking, it was unlawful before, and the Treasury has been advised to take this step. Our agreements enable each country to tax diverted profits, and that is all that this Clause does. It is mainly aimed to deal with the case where a British company diverts profits abroad. The way in which it does this is exactly as the League of Nations' Model Convention did, and the way in which our double taxation agreements operate. They simply say that the transaction is rewritten so as to take the shape it would have had supposing that the price had been one arrived at at arm's length.

Hon. Members say it is difficult to arrive at a price on that basis. In some circumstances, I frankly agree that it is difficult to do so, but it is more difficult to try and devise any other measure of price which would be more appropriate. Sometimes the word "market price" is used or something of that sort, but the conception sought to be embodied in the Clause is one of two companies or two persons who are negotiating at arm's length; that is to say, there are two independent companies not controlled or owned by each other and the arm's length price is one they would in normal circumstances arrive at.

What the Amendment seeks to do is to add to it a requirement that the price should be reasonable. What it really is doing, in seeking to do that is to add an uncertain test to a test which is certainly capable of precision. In most cases one can, looking at the transaction, say what would have been the price that these two companies would have fixed upon as the appropriate price supposing they had been negotiating at arm's length.

If one says the price has to be reasonable as well, one is introducing a whole range of considerations as to what in given circumstances is reasonable. It is better to follow the model of the recent double taxation agreements which have given rise to no difficulty and have the precedent of the League of Nations' Model Convention; to follow that example which has worked perfectly well hitherto and which has no vice except this legal doubt which has been raised. It is better to do that than raise a new and uncertain test so that nobody knows where they stand. For these reasons, it is much the best to leave the Clause as it is.

We must have the Clause, since otherwise under the agreements we have with the United States, for example, they would be able to tax their nationals where profits were diverted away from them but we should not have the reciprocal advantage. That is a hopeless situation. It means the other countries with which we enter into agreements have an advantage over us, and we have no reciprocal advantage when the situation is reversed, with regard to them. I think that the double taxation agreements are desirable in themselves, I think that the House as a whole is in agreement that we must have as many of them as we can and must regularise the incidence of double taxation so far as we can throughout the world.

Mr. J. Foster

I understand what the right hon. and learned Gentleman is saying about the intention of the Clause, but does not the Clause go very much farther in what it does than what he indicates? Could he deal with what the proposer and the seconder of the Amendment have said about what the Clause says? Not only does it do what the Attorney-General says it does, namely, stops profits going abroad so that they can be taxed, but does it not also affect all the parent companies dealing with subsidiaries in England?

Mr. Eccles

Would the right hon. and learned Gentleman tell the House what the position of the maker of the lathe, which I quoted, is? Should he continue to sell at cost price, or must he sell at market price?

The Attorney-General

If I may, I will answer both these questions in order. Most of the cases are the cases of the parent company here and the subsidiary abroad. The Clause does not apply at all to companies which are taxed here under Schedule D. As would have been noticed, there is a proviso both to subsection (1) and to subsection (2) which takes out the case of two companies both resident here and both dealing in or transferring stock or something of that sort. If they are taxable in relation to that transfer under Schedule D, they are taken out. The hon. Member is disagreeing before I can give him his answer. It brings into its scope, and I do not see why it should not, the case of a company which is a holding company and which receives shares from a dealing company.

Suppose that we take the case of a company which deals in shares and controls a company which is a holding company, and it transfers shares in which it deals to the holding company. It would be taxed in relation to any profit it makes by that transfer under Schedule D. It is perfectly reasonable that if the shares are transferred at cost or below their market value, below their arm's length price, to the holding company, and the holding company then sells them later at a price above that and realises a capital profit, this Clause should apply.

12 midnight.

With regard to the question about the sale of lathes. This Clause really does not have much effect upon that, It is already dealt with by Section 59 of the 1945 Income Tax Act, which, in the case of a transfer of capital assets between companies provides for the rewriting of the transfer at the arm's length price for the purpose of the assesment, not only of the depreciation allowance, but of the balancing charge as well. So that one has to look to Section 59 of that Act to see what happens when inter-related companies transfer capital assets one to the other.

Clause 59, in fact, does almost exactly the same as this Clause does in relation to transfers within its scope. For that reason, I hope that the House will agree that this Clause is one we must have. We are bound under our double taxation agreements to give advantages, and if we have no legal right under the terms of our own legislation we cannot exact similar advantages when the position is reversed. This Clause covers a limited class of transactions, when a company is selling to a holding company in this country. It does not affect the companies resident here that are taxed under Schedule D in respect of transfers.

Captain Crookshank

It has been my experience in the past that when we are getting to the end of the Report stage something quite incredible happens. This is one of those occasions. None of us ever wants to criticise or object to the right hon. and learned Gentleman speaking, or to the clarity of the speeches which he makes. But I should have thought that this was not a legal matter at all; it should have been explained to us in greater detail either by the Chancellor or by the Board of Trade, because of its general repercussions.

What is most extraordinary is that the Attorney-General has based his defence of this Clause and his opposition to this Amendment on an argument which has never been heard before in this connection. It is not as if the Clause had not been before the Committee at an earlier stage. Tonight he says that the Clause is based on a model clause of the League of Nations and that it is mixed up with the double taxation agreements; that this was thought to be lawful but there was found some error, and that this Clause is merely legalising something that was thought to be the law, and that without it we should be diverting profits to other countries. The Government are bound, he says, to have this Clause because otherwise it would give other countries advantages and we could not exact from those countries similar advantages here.

All this is very interesting. But, when the Attorney-General spoke to this Clause before, he started off by saying that it deals with a form of tax avoidance. I find what he says today hard to reconcile with the normal meaning of tax avoidance, as used in debates on this Bill.

The Attorney-General

It is not inconsistent.

Captain Crookshank

I should have thought it was. Why on earth did he not tell us about the League of Nations or double taxation relief before? I do not believe that he knows a word about it, and that all this happened between 13th June and 2nd July. Why did not some one get up and tell us? It is no use those on the Treasury Bench wagging their heads. A great deal of anxiety would have been allayed if we had been told. But no, they did nothing of the sort, and I find it hard to accept this strange new story at this stage of the Bill.

My second objection to the Attorney-General's speech is when he says that by using the words "not reasonable in all the circumstances" a very uncertain test is brought in. In most cases, he said, one could easily tell by looking at the goods what the prices should be in terms of "arm's length prices." But the other night he did not say that at all. He said then: … it is extremely difficult—to assess what is meant by arm's length prices'. He also stated: I certainly did not mean to convey the impression that it would be perfectly easy to arrive at a price which would conform to the formula. And later in the same speech: I am not saying that the application of this Clause in all cases will be one which does not raise fairly complicated problems."—[OFFIDAL REPORT, 13th June, 1951; Vol. 488, c. 2471–72.] The Attorney-General has granted all that, and he has realised that to arrive at an arm's length decision is very difficult. Why then does he object to our Amendment, particularly if he will bear in mind the point which my hon. Friends made about the enormous number of transactions which will have to be upset by this?

Of course, if he is going to ride off on the League of Nations and double taxation relief argument and say that everything he said previously has nothing to do with the Clause, then I find myself in great difficulty in advising my hon. Friends. But I would suggest that they protest in the only possible way now that the Bill has reached this stage and it is too late to amend it. The Attorney-General, having come down with this explanation, we must protest against it, and if my hon. Friends press their Amendment I shall go into the Lobby with them.

Mr. Erroll (Altrincham and Sale)

I wish to draw the attention of the Attorney-General to the completely impossible position into which he has put us. We were told this Clause was to meet tax avoidance by firms transferring property to subsidiaries abroad. Now we are told it is merely designed to legalise a procedure arising out of former Acts. I can only say that in that case a large number of transactions have been taking place which have not been lawful, and if Section 59 of the 1945 Act is doing all that is now claimed for it, the Treasury has been extraordinarily remiss in its work. The fact is that the Clause as it stands without our Amendment, if it is worked fully at all, has to be worked as has been suggested, and if it is not to be worked as fully as it is at present, it is essential that this Amendment should be accepted, and other Amendments as well.

The Attorney-General has said that it is necessary to have a test capable of precision, and that the word "reasonable" is vague. But in transactions under this Clause there can be no precision. That is our point. I would urge Ministers opposite to realise that these transactions are not capable of that legal precision which the Attorney-General and his advisers think possible.

Sir Arnold Gridley (Stockport, South)

I happen to be interested in this question as the chairman of a holding company with a large number of subsidiary companies. I could understand the need for this Clause if, as the Attorney-General has explained, it were intended to deal with transactions between companies in this country and companies overseas, but it is not limited to that. It applies to companies which are doing inter-company business in this country.

If it is not too late, I should like to press the Chancellor to explain to us precisely how this Clause would be worked. So far as I can see, it is utterly impracticable, without giving the widest roving powers to officers of the Inland Revenue, who would probably waste a great deal of their own time and of the time of managers and accountants of companies who ought to be doing their bit in increasing the production which the country needs.

If a holding company has a group of subsidiaries all 100 per cent. owned, why is a Clause of this kind necessary for transactions between these subsidiaries? It would not matter what the prices were. If one company made a profit, the company supplying would presumably make a loss. It often happens that a company obtains control of another because it is the only company equipped to provide essential elements which the parent company needs to develop a new type of machine. Who in the world is going to say what is the right price to charge for a product that has never been produced before when it is transferred to another company in the group? Those who have had actual experience of this see the absurdity of what the Government are trying to do here.

I think that some of the advisers of the Government have gone mad. This attempt to trap one or two people is going to put hundreds of others to unnecessary work and waste the time of Government officials and those carrying on productive industry. I do not know whether it is practical for the Chancellor to withdraw the Clause and submit another dealing with the control he wishes to apply to double taxation and leave out its effect on companies carrying on inter-trading in this country, but I put that suggestion to the Chancellor and hope he will see his way to look into it again.

12.15 a.m.

Mr. Drayson (Skipton)

Listening to the discussion on the Amendment, it occurs to me that it must give rise to considerable confusion in the textile industry, where there are a number of companies that are combined vertically. Companies

which spin the yarn, weave the cloth, finish it, make it up, and then do the merchanting and exporting overseas, are in one group.

In such a set-up, do the Government say they are going to decide the correct price at which a spinning company sells its yarn to the weaving company, or the correct price at which a weaving company sells its cloth to its subsidiary finishing company, whether the proper finishing charges are made by the finishing company and are passed to the next which is handling the material, whether the making up charge charged to a separate subsidiary which deals with making up is correct, or whether favourable terms are given to the subsidiary or the ultimate merchanting company?

I think that the Chancellor of the Exchequer, or the Attorney-General, if he will consider the possible complications which will arise in any vertical combine controlling a number of subsidiary companies in the textile industries will see the difficulties one can get into. I would ask him to give this further consideration because of the difficulties that might arise in Lancashire and Yorkshire.

Question put, "That these words be there inserted in the Bill."

The House divided: Ayes, 256; Noes, 272.

Division No. 164.] AYES [12.19 a.m
Aitken, W. T. Bullock, Capt. M. Dray son, G. B.
Alport, C. J. M. Bullus, Wing Commander E E Drewe, C.
Amery, Julian (Preston, N.) Burden, F. A. Dugdale, Maj. Sir T. (Richmond)
Amory, Heathcoat (Tiverton)) Butcher, H. W. Duncan, Capt. J A. L.
Arbuthnot, John Butler, Rt. Hn. R. A. (S'ffr'n W'ldn) Duthie, W. S.
Ashton, H. (Chelmsford) Carr, Robert (Mitcham) Eccles, D. M.
Assheton, Rt. Hon. R. (Blackburn, W) Carson, Hon. E. Elliot, Rt. Hon. W E
Astor, Hon. M. L Channon, H. Erroll F. J.
Baker, P. A. D. Churchill, Rt. Hon. W. S. Fisher, Nigel
Baldock, Lt.-Cmdr. J M Clarke, Col. Ralph (East Grinstead) Fort, R
Banks, Col. C. Clarke, Brig. Terence (Portsmouth, W.) Foster, John
Baxter, A. B. Conant, Maj. R. J. E. Fraser, Hon. Hugh (Stone)
Beamish, Maj. Tufton Cooper, Sqn. Ldr. Albert (Ilford, S.) Fraser, Sir lan (Morecambe & Lonsdale)
Bell, R. M. Cooper-Key, E. M. Fyfe, Rt. Hon. Sir David Maxwell
Bennett, Dr. Reginald (Gosport) Corbett, Lt.-Col. Uvedale (Ludlow) Gage, C. H.
Bennett, William (Woodside) Craddock, Beresford (Spelthorne) Galbraith, Cmdr. T. O (Pollok)
Bevins, J. R. (Liverpool, Toxteth) Crookshank, Capt. Rt. Hon. H. F. C. Galbrailh, T. G. D. (Hillhead)
Birch, Nigel Crouch, R. F. Gammans, L. D
Bishop, F. P. Crowder, Capt. John (Firchley) Garner-Evans, E. H. (Denbign)
Black, C. W Crowder, Petre (Ruislip—Northwood) Gales, Maj. E. E.
Boles, Lt.-Col. D. C. (Wells) Cundiff, F. W. Gomme-Duncan, Col. A
Bossom, A. C. Cuthbert, W. N. Gridley, Sir Arnold
Boyd-Carpenter, J. A Darling, Sir William (Edinburgh, S) Grimond, J.
Boyle, Sir Edward Davidson, Viscountess Grimston, Hon. John (St. Albans)
Bracken, Rt. Hon. B. Davies, Nigel (Epping) Grimston, Robert (Westbury)
Brains, B. R. de Chair, Somerset Harden, J. R. E.
Braithwaite, Sir Albert (Harrow, W.) De la Bère, R. Hare, Hon. J. H. (Woodbridge)
Braithwaite, Lt.-Cdr. G. (Bristol, N.W) Deedes, W. F. Harris, Frederic (Croydon, N.)
Bromley-Davenport, Lt.-Col. W Digby, S. Wingfield Harris, Reader (Heston)
Brooke, Henry (Hampstead) Dodds-Parker, A. D Harvey, Air Cdre. A. V. (Macclesfield)
Browne, Jack (Govan) Donner, P. W. Harvey, Ian (Harrow, E.)
Buchan-Hapburn, P. G T. Douglas-Hamilton, Lord Malcolm Harvie-Watt, Sir George
Hay, John Maclean, Fitzroy Sandys, Rt. Hon. D.
Head, Brig. A H MacLeod, Iain (Enfield, W) Scott, Donald
Heald, Lionel MacLeod, John (Ross and Cromarty Shepherd, William
Henderson, John (Cathcart) Macpherson, Major Niall (Dumfries) Smiles, Lt.-Col. Sir Walter
Hicks-Beach, Maj. W. W. Maitland, Cmdr. J. W. Smithers, Peter (Winchester)
Higgs, J. M. C. Manningham-Buller, R E Smithers. Sir Waldron (Orpington)
Hill, Dr. Charles (Luton) Marlowe, A. A. H. Smyth, Brig. J. G. (Norwood)
Hill, Mrs. E. (Wythenshawe) Marples, A. E. Snadden, W. McN.
Hinchingbrooke, Viscount Marshall, Douglas (Bodmin) Soames, Capt. C
Hirst, Geoffrey Marshall, Sidney (Sutton) Spearman, A. C. M.
Hops, Lord John Maude, Angus (Ealing, S) Spence, H.R. (Aberdeenshire, W.)
Hopkinson, Henry Maude, John (Exeter) Spens, Sir Patrick (Kensington, S.)
Hornsby-Smith, Miss P. Maudling, R Stanley, Capt. Hon. Richard (N. Fylde)
Horsbrugh, Rt. Hon. Florence Mellor, Sir John Stevens, G. P.
Howard, Gerald (Cambridgeshire) Molson, A. H. E. Steward, W. A. (Woolwich, W.)
Howard, Greville (St. Ives) Monckton, Sir Walter Stewart, Henderson (Fife, E.)
Hudson, Sir Austin (Lewisham, N.) Morrison, John (Salisbury) Stoddart-Scott, Col. M.
Hudson, W. R. A. (Hull, N.) Morrison, Rt. Hon. W. S. (Cirencester) Storey, S.
Hurd, A. R. Mott-Radclyffe, C. E Strauss, Hendry (Norwich, S.)
Hutchinson, Geoffrey (Ilford, N.) Nabarro, G. Stuart, Rt. Hon. James (Moray)
Hutchison, Lt.-Com. Clark (E'b'rgh W) Nicholls, Harmar Summers, G. S.
Hutchison, Col. James (Glasgow) Nicholson, G. Sutcliffe, H.
Hyde, Lt.-Col. H. M. Noble, Cmdr. A. H. P. Taylor, Charles (Eastbourne)
Hylton-Foster, H. B. Nugent, G. R. H. Teeling, W.
Jennings, R. Nutting, Anthony Thomas, J. P. L. (Hereford)
Johnson, Howard (Kemptown) Oakshott, H. D. Thompson, Kenneth Pugh (Walton)
Jones, A. (Hall Green) Odey, G. W. Thompson, Lt.-Cmdr. R (Croydon, W.)
Joynson-Hicks, Hon. L. W Ormsby-Gore, Hon. W. D Thorneycroft, Peter (Monmouth)
Kaberry, D. Orr, Capt. L. P. S. Thornton Kemsley, Col. C N
Kerr, H. W (Cambridge) Orr-Ewing, Charles Ian (Hendon, N.) Thorp, Brig R A F
Kingsmill, Lt.-Col. W. H Orr-Ewing, Ian L. (Weston-super-Mare) Tilney, John
Lambert, Hon. G. Osborne, C. Touches G. C
Lancaster, Col. C. G Perkins, W. R. D. Turner, H. F L
Langford-Holt, J. Peto, Brig. C. H. M Turton R H
Law, Rt. Hon. R. K. Pickthorn, K. Vane W. M. F.
Leather, E. H. C Pitman, I. J. Vosper, D. F.
Legge-Bourke, Maj E A H Powell, J. Enoch Wakefield, Edward (Derbyshire, W.)
Lindsay, Martin Price, Henry (Lewisham, W.) Wakeheld, Sir Wavell (Marylebone)
Linstead, H. N Prior-Palmer, Brig. O Walker-Smith, D. C.
Llewellyn, D. Profumo, J. D. Ward, Hon. George (Worcester)
Lloyd, Rt. Hon. G. (King's Norton) Raikes, H. V. Ward, Miss I. (Tynemouth)
Lloyd, Maj. Guy (Renfrew, E.) Rayner, Brig. R Waterhouse, Capt. Rt. Hon C
Lloyd, Selwyn (Wirral) Redmayne, M. Watkinson, H.
Lockwood. Lt.-Col. J. C Remnant, Hon. P. White, Baker (Canterbury)
Longden, Gilbert (Herts, S.W) Renton, D. L. M. Williams, Charles (Torquay)
Low, A R. W Roberts, Maj. Peter (Heeley) Williams, Gerald (Tonbridge)
Lucas, P. B. (Brentford) Robinson, Roland (Blackpool S.) Williams, Sir Herbert (Croydon. E.)
Lucas-Tooth, Sir Hugh Robson-Brown, W. Wills, G.
McAdden, S. J. Rodgers, John (Sevenoaks) Wilson, Geoffrey (Truro)
McCorquodale, Rt. Hon. M. S. Roper, Sir Harold Winterton, Rt. Hon. Earl
Macdonald, Sir Peter (I. of Wight) Ropner, Col. L Wood, Hon. R.
Mackeson, Brig H. R Russell, R. S.
McKie, J. H. (Galloway) Ryder, Capt. R. E. D. TELLERS FOR THE AYES:
Maclay, Hon. John Salter, Rt. Hon. Sir Arthur Mr. Studholme and Major Wheatley
NOES
Acland, Sir Richard Brook, Dryden (Halifax) Dalton, Rt. Hon. H.
Adams, Richard Brooks, T. J. (Normanton) Darling, George (Hillsborough)
Albu, A. H. Broughton, Dr. A. D. D. Davies, A. Edward (Stoke, N.)
Allen, Arthur (Bosworth) Brown, Thomas (Ince) Davies, Ernest (Enfield, E.)
Allen, Scholefield (Crewe) Burke, W. A. Davies, Harold (Leek)
Anderson, Alexander (Motherwell) Burton, Miss E. Davies, Stephen (Merthyr)
Anderson, Frank (Whitehaven) Butler, Herbert (Hackney, S) de Freitas, Geoffrey
Awbery, S. S. Callaghan, L. J. Deer, G.
Bacon, Miss Alice Carmichael, J. Delargy, H. J
Baird, J. Castle, Mrs. B. A. Diamond, J.
Balfour, A. Champion, A. J. Dodds, N. N
Barnes, Rt. Hon. A. J. Chetwynd, G. R. Donnelly, D
Bartley, P. Clunie, J. Dugdale, Rt Hon J. (W. Bromwich)
Bellenger, Rt. Hon. F J Cocks, F. S. Dye, S.
Benn, Wedgwood Coldrick, W. Ede, Rt. Hon. J. C
Benson, G. Collick, P. Edelman, M.
Beswick, F. Cook, T. F. Edwards, John (Brighouse)
Bevan, Rt. Hon. A. (Ebbw Vale) Cooper, Geoffrey (Middlesbrough, W) Edwards, Rt. Hon. Ness (Caerphilly)
Bing, G. H. C. Cooper, John (Deptford) Edwards, W. J. (Stepney)
Blenkinsop, A Corbet, Mrs. Freda (Peckham) Evans, Albert (Islington, S.W.)
Blyton, W. R Cove, W. G. Evans, Edward (Lowestoft)
Boardman, H Craddock, George (Bradford, S.) Evans, Stanley (Wednesbury)
Booth, A. Crosland, C. A. R. Ewart, R
Bottomley, A. G. Crossman, R. H. S Fernyhough, E.
Bowles, F. G. (Nuneaton) Cullen, Mrs. A. Field, Capt. W J
Braddock, Mrs. Elizabeth Daines, P. Fletcher, Eric (Islington, E.)
Follick, M. Lever, Harold (Cheetham) Robertson, J. J. (Berwick)
Foot, M M. Lever, Leslie (Ardwick) Robinson, Kenneth (St. Pancras, N.)
Fraser, Thomas (Hamilton) Lewis, Arthur (West Ham, N) Rogers, George (Kensington, N.)
Freeman, John (Watford) Lewis, John (Bolton, W.) Royle, C.
Freeman, Peter (Newport) Lindgren, G. S. Shackleton, E. A. A.
Gaitskell, Rt. Hon. H T. N Lipton, Lt.-Col. M. Shurmer, P. L. E.
Ganley, Mrs. C S. Logan, D. G. Silverman, Julius (Erdington)
Gibson, C. W Longden, Fred (Small Heath) Silverman, Sydney (Nelson)
Gilzean, A. McAllister, G. Simmons, C. J.
Glanville, James (Consett) MacColl, J. E Slater, J
Gooch, E. G. McGovern, J. Smith, Ellis (Stoke, S.)
Gordon-Walker, Rt. Hon. P. C. McInnes, J. Smith, Norman (Nottingham, S.)
Greenwood, Anthony (Rossendale) Mack, J. D. Snow, J W
Greenwood, Rt. Hn. Arthur (Wakefield) McKay, John (Wallsend) Sorensen, R. W
Grenfell, Rt. Hon. D. R. Mackay, R. W. G. (Reading, N.) Soskice, Rt. Hon Sir Frank
Grey, C. F. McLeavy, F. Sparks, J. A
Griffiths, David (Rother Valley) MacMillan, Malcolm (Western Isles) Steele, T.
Griffiths, Rt. Hon. James (Llanelly) McNeil, Rt. Hon. H. Stewart, Michael (Fulham, E.)
Griffiths, William (Exchange) MacPherson, Malcolm (Stirling) Strachey, Rt. Hon. J.
Gunter, R. J. Mainwaring, W. H. Strauss, Rt. Hon. George (Vauxhall)
Haire, John E. (Wycombe) Mallalieu, E. L. (Brigg) Stross, Dr. Barnelt
Hale, Joseph (Rochdale) Mallalieu, J. P. W (Huddersfield, E) Sylvester, G. O
Hale, Leslie (Oldham, W.) Mann, Mrs. Jean Taylor, Bernard (Mansfield)
Hall, Rt. Hon. Glenvil (Colne Valley) Manuel, A. C. Taylor, Robert (Morpeth)
Hall, John (Gateshead, W.) Marquand, Rt. Hon. H. A Thomas, David (Aberdare)
Hamillon, W. W Mathers, Rt. Hon. G. Thomas, George (Cardiff)
Hannan, W. Mayhew, C. P Thomas, Iorwerth (Rhondda, W)
Hardy, E. A Messer, F. Thomas, Ivor Owen (Wrekin)
Hargreaves, A Middleton, Mrs. L Thorneycroft, Harry (Clayton)
Hastings, S. Mikardo, Ian. Thurtle, Ernest
Hayman, F. H. Mitchison, G. R Timmons, J.
Henderson, Rt. Hn Arthur (Tiplon) Moeran, E. W Tomney, F.
Hewitson, Capt M Monslow, W Ungoed-Thomas, Sir Lynn
Hobson, C. R Moody, A. S. Usborne, H.
Holman, P. Morley, R. Vernon, W. F
Holmes, Horace (Hemsworth) Morris, Percy (Swansea, W.) Wallace, H. W
Houghton, D. Mort, D. L. Watkins, T. E.
Hoy, J. Moyle, A. Webb, Rt. Hon. M. (Bradford, C)
Hubbard, T Mulley, F. W Weitzman, D.
Hudson, James (Ealing, N.) Nally, W. Wells, Percy (Faversham)
Hughes, Emrys (S Ayrshire) Neal, Harold (Bolsover) Wells, William (Walsall)
Hughes, Hector (Aberdeen, N.) Oldfield, W. H West, D. G.
Hynd, H. (Accrington) Oliver, G. H Wheatley, Rt. Hon. John (Edinb'gh E.)
Hynd, J. B. (Attercliffe) Orbach, M. White, Mrs. Eirene (E. Flint)
Irvine, A. J. (Edge Hill) Padley, W. E. White, Henry (Derbyshire, N.E.)
Irving, W. J. (Wood Green) Paget R. T. Whiteley. Rt. Hon. W
Isaacs, Rt. Hon G A Pannell, T. C. Wigg, G.
Janner, B Pargiter, G A Wilcock, Group Capt C. A. B
Jay, D. P. T. Parker, J. Wilkins, W. A
Jeger, George (Goole) Paton, A Willey, Frederick, Sunderland
Jeger, Dr. Santo (St. Pancras, S) Pearson, A Willey, Octavius (Cleveland)
Jenkins, R. H. Peart, T. F Williams, David (Neath)
Johnson, James (Rugby) Porter, G Williams, Rev. Llywelyn (Aberlillery)
Johnston, Douglas (Paisley) Price Joseph T. (Westhoughton) Williams, Ronald (Wigan)
Jones, David (Hartlepool) Price, Phillps (Gloucestershire, W.) Williams, Rt. Hon. Thomas (Don V'lly)
Jones, Jack (Rotherham) Proctor, W. T Williams, W. T. (Hammersmith, S)
Jones, William Elwyn (Conway) Pryde, D. J Wilson, Rt. Hon. Harold (Huyton)
Keenan, W. Pursey, Cmdr. H Winterbottom, Ian (Nottingham, C.)
Kenyon, C Rankin, J Winterbottom, Richard (Brightside)
Key, Rt. Hon. C. W Ree, Mrs. D. Wyatt, W. L
King, Dr. H. M. Reeves, J. Yates, V. F.
Kinghorn. Sqn. Ldr E Reid, Thomas (Swindon) Younger, Rt Hon K
Kinley, J. Reid, William (Camlachie)
Lang, Gordon Richards, R. TELLERS FOR THE NOES:
Lee, Frederick (Newton) Robens, Rt. Hon. A Mr. Popplewell and Mr. Bowden.
Lee, Miss Jennie (Cannok) Roberts, Goronwy (Caernarvonshire)

Question put, and agreed to.

Mr. Hutchinson

I beg to move, in page 27, line 10, after "purposes," to insert: and in determining any capital allowances to which the buyer may be entitled under Part IV of the Finance Act, 1944, or under Rule 6 or Rule 7 of the Rules applicable to Cases I and II of Schedule D or under any of the provisions of the Income Tax Act, 1945. It might be for the convenience of the House to discuss with this Amendment the two Amendments which stand in my name and that of my hon. Friends: In page 27, line 33, after "purposes," insert: and in determining any balancing charges to which the seller may be liable under the provisions of the Income Tax Act, 1945"; and in line 43 to leave out subsection (3).

The purpose of this Amendment is to put right what appears to be an obvious omission, and indeed a very obvious injustice, if it is an omission. My hon. Friends have pointed out that these sales between associated persons do not always result in loss of tax, and, indeed, in the majority of cases, are not intended to avoid tax. There is the case put by my hon. Friend the Member for Chippenham (Mr. Eccles) where one company, a subsidiary in a group of companies, supplies a piece of machinery or plant to another member of the group at a price less than the market value. That is a perfectly normal and perfectly legitimate transaction and indeed is, I suppose, one of the most common transactions to which this Clause relates.

Under this Clause the Inland Revenue authorities may, for the purpose of Income Tax and Profits Tax, treat the sale as having been made at what is called "arm's length" price, that is to say, the price at which it would have been made if the transaction had taken place between independent persons. It may be that there ate cases where it is desirable that that should be done and these Amendments of ours are not concerned with those cases. But if the price is to be readjusted in this way for one party there ought to be some reciprocal arrangement to meet the position of the buyer or the seller who is the other party to the transaction. The buyer may be entitled to capital allowances which, as the Clause stands, will be assessed, as I understand it, upon the actual price, not the readjusted price.

12.30 a.m.

If in the case of part of the transaction the price is to be assumed to be the notional price, and one party to the transaction is to be assessed in respect of Income Tax and Profits Tax upon the notional price and not the real price, then equally the other party ought to be assessed in respect of the capital allowances or the balancing charges to which he may be entitled on the same notional price as that employed in assessing the Profits Tax and Income Tax liability of the other party. The price should be the same for each purpose. It appears to be a very obvious omission that it is not; but then the right hon. and learned Gentleman may be going to tell us that the matter is already provided for in some other way which has hitherto escaped me. As the matter stands, the Clause ought to be amended on the lines we propose.

Mr. Selwyn Lloyd

I beg to second the Amendment.

The Amendment raises a number of fascinating topics which I do not propose to enter into at this time of night. Hon. Gentlemen opposite who have studied the Clause may consider that subsection (3) contains much of what is put forward in the first two of our Amendments, but I suggest that it would be very much clearer to adopt the form that we have proposed. If it were done in the way we suggest, subsection (3) would no longer be necessary.

The Attorney-General

The desire of the hon. and learned Member for Ilford, North (Mr. Hutchinson), is already realised, because, as the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) implied, subsection (3) already does the work. The hon. and learned Member for Wirral thought that it would be clearer to amend subsection (1). That is a matter of drafting, but I can assure the hon. and learned Member for Ilford, North, who was concerned as to the effect so far as capital allowances were concerned, that subsection (3) has precisely the effect he desires. It preserves the operation of all the provisions of the code relating to both Income Tax and Profits Tax which deals with capital allowances and, in particular, preserves the effect of Section 59 of the Income Tax Act, 1945, subsection (2) of which rewrites the price, so far as capital allowances are concerned, in exactly the same way as the price is rewritten under Clause 34. I urge that the change is not in any sense necessary.

Mr. Hutchinson rose—

Mr. Speaker

The hon. and learned Gentleman is not entitled to make a second speech. I do not know whether he wants to talk again.

Mr. Hutchinson

In view of the explanation of the right hon. and learned Gentleman, I beg to ask leave to withdraw the Amendment.

Mr. Speaker

I beg the hon. and learned Gentleman's pardon.

Amendment, by leave, withdrawn,

Mr. Maudling

I beg to move, in page 27, to leave out lines 15 to 19, and to insert: Provided that this subsection shall not apply where the buyer is resident in the United Kingdom and is carrying on a trade therein and either:—

  1. (a)the price of the property falls to be taken into account as a deduction in computing the profits or gains or losses of that trade for income tax purposes, or
  2. (b)the price of the property falls to be taken into account in computing any allowances to which the purchaser may be entitled under Rule 6 or Rule 7 of the Rules applicable to Cases I and II of Schedule D, or of any of the provisions of the Income Tax Act, 1945, or of Part IV of the Finance Act, 1944.
This Amendment is hardly a simple one, but its purpose can be described briefly. At the moment, when transactions take place between companies resident in the United Kingdom, they are not affected if the property passing falls to be taken into account as deduction in computing the profits or gains of the company, concerned. The Attorney-General explained earlier that in dealing with companies resident in this country, the Clause was designed to prevent easy transactions where the property passing was a revenue item in one case and a capital item in the other case and, as a result, a good deal of tax could be avoided by the second company subsequently selling the thing at a capital profit.

By this Amendment we suggest that the Clause is still too wide because there can be many transactions where an item passing may be of a capital nature but where a tax-free capital profit cannot be made. That will occur when the article concerned falls into the hands of the buying company to be treated as ranking for capital allowance. In other words, if the buying company buys it at an artificially low price, it merely artificially reduces its own depreciation allowances and, conversely, if it sells the article subsequently at a profit, it becomes liable to a balancing charge. In either case it would seem that the article passing from company A to company B is one that is taken into account in computing the capital allowances of company B and there cannot be an avoidance of tax liability.

This Amendment, therefore, is designed to limit even further the number of cases to which the mischief of Clause 34 must apply, and we contend that in limiting the mischief of that Clause further, we do not leave any loophole for tax avoidance.

Mr. Eccles

I beg to second the Amendment.

Perhaps it might be permissible for me to say a word on my Amendment to page 28, line 19, which seeks to insert a new subsection (7) as follows: (7) Where a sale of property is affected by the provisions of this section and both the buyer and the seller are resident in the United Kingdom, the following provisions of this subsection shall have effect where both the buyer and the seller by notice in writing to the surveyor so elect:—

  1. (a)any difference between the price at which the property was, in fact, sold and the price determined in accordance with the previous provisions of this section shall not be charged to tax on the occasion of such sale; and
  2. (b)if, within a period of five years thereafter, the property is resold by the said buyer, the difference omitted from charge by virtue of paragraph (a) of this subsection shall then be charged to tax on the said buyer, provided that, save as provided in paragraph (c)of this subsection, such charge shall not exceed the amount by which the proceeds of the resale exceed the actual cost of the property to the said buyer; and
  3. (c)if, however, the proceeds of that resale constitute a trading receipt in the hands of the said buyer, the proviso to the preceding paragraph of this subsection shall not apply.
It deals with the same point but, having heard the argument first put forward by the hon. and learned Member for Ilford, North (Mr. Hutchinson) and now by the hon. Member for Barnet (Mr. Maudling) I am not so much in love with my Amendment as I was. None the less, I think this is a real point where it happens that the sale is made by a company on revenue account and the purchase is on capital account.

What I hoped was that at any rate the tax would not be collected for a period during which the purchaser would hold the asset within the group, and then, if the asset is sold, the tax would be collected on the difference between the sale price and the price at which the first seller parted with the asset. That was the additional point of my Amendment, but fundamentally it deals with the same sort of transaction as my hon. Friend has brought forward and, therefore, I shall be glad if the Attorney-General will reply to both.

The Attorney-General

I do not think the Amendment would improve the present situation. As the Clause reads, this is how it works. Supposing there is a dealing company which sells at cost to a holding company, the one controlling the other. They are inter-related companies with inter-related holdings. The dealing company is taxed to Schedule D upon the profit that it would have made if it had sold at the arm's-length price. If one looks at the position of the holding company, which can only realise a capital profit should it dispose of the asset, the situation is as follows.

By virtue of subsection (2) of Section 59 of the Income Tax Act, 1945, it is treated as having acquired the asset at the higher price— the market price—from the seller. Therefore, the holding company, the buyer, is entitled to claim its capital allowances upon the footing that it has paid the higher price although in fact it has only paid the cost price. That works perfectly reasonably.

In one case the selling company is taxed under Schedule D upon the basis that it makes the profit that it would have made on an arm's-length deal and similarly the holding company, although it has only paid the cost price, is entitled to claim to have its cost written down by capital allowances which would be appropriate to the full figure that it would have paid supposing it had bought at the market price. Similarly, for the purpose of balancing charges, when it disposes of the assets, it is able to treat itself as having gained the assets at a market price, and not at cost price. I do not think the suggestion made would improve the Bill; what we are doing is something fair to both sides, and I ask the House not to accept the Amendment.

The hon. Member for Chippenham (Mr. Eccles) referred to his own alternative, which is lower down on the Order Paper. I do not know if he proposes to endeavour to catch your eye, Mr. Speaker, at a later stage, nor whether I should be within the rules of order in referring to it; but if I may I would say, quite briefly, that that is another way of dealing with the situation without improving it. It is not reasonable that a group of companies should pay tax only if it sells the assets within the five years, as the hon. Gentleman suggests.

Mr. Erroll

Having listened very carefully to the Attorney-General, I should like to get just one point quite clear. The purchasing company will automatically be entitled to assume a higher profit, and it has only to show that the selling company has been charged at the higher selling price automatically to get relief of the assumed higher price. If that is provided by Section 59—if that relief is given—then I will not pursue the matter.

The Attorney-General

That is the automatic effect of Clause 59.

Amendment negatived.

The Attorney-General

I beg to move, in page 27, line 42, at the end, to insert: (3) The preceding provisions of this section shall not apply in relation to any sale unless the Commissioners of Inland Revenue so direct, and where such a direction is given all such adjustments shall be made, whether by additional assessment, repayment of tax or otherwise, as are necessary to give effect to the direction. The object of this Amendment is to meet an anxiety which hon. Members expressed in the very short discussion in Committee on this particular Clause, namely, that this would be automatically applied to all sorts of transactions as, for example, where the difference of the arm's length price and market price was quite small—that is to say all sorts of different sales which cannot be within the intended scope of the Clause.

We have met this anxiety by saying that every sale shall not be treated as automatic for the purposes of the Clause. It will only come into operation if the Commissioners take the initiative and direct that the Section is to apply to a particular set of circumstances; and so, although hon. Members may not all like each feature of the Clause, I think all will agree that this prevents it from operating in an oppressive manner. There is nothing automatic about the operation of the Clause; only where the Commissioners think that there should be a direction about a certain transaction will action be taken.

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

12.45 a.m.

Mr. Erroll

I beg to move, as an Amendment to the proposed Amendment, after "sale" to insert: or any class of sales made in accordance with conditions approved by the Treasury nor to any other sale. The Attorney-General, in introducing his new subsection, has undoubtedly improved the operation of this Clause, although the Clause as a whole is one to which we still take the strongest objection. The Attorney-General made it plain in his remarks that not every sale is now to come automatically within the purview of the Clause, but only those where the Commissioners so direct and where, to use his phrase, some special features attach to the sale.

The position, however, does remain extremely unsatisfactory for companies carrying on honourable transactions in this particular field, because they are still left without any form of guidance as to what these special features may be. The Commissioners may direct. In what circumstances are they going to direct? What are to be deemed to be special features by the Commissioners? There are many bodies of Commissioners in some fields of taxation. There is also room, therefore, for a considerable divergence of opinion. Firms are left, as the new subsection stands, entirely in the dark as to where a Commissioners' direction may fall.

The purpose of my Amendment is to enable the Treasury to draw up a short list of those conditions which are perfectly all right and which should not under any circumstances attract the direction of the Commissioners. It need not be comprehensive. It need not be a complete list, but any list, however short, would be a tremendous help to the honourable firms. We on this side are trying to protect the position of the honourable firms which are doing the transaction or business in an honourable fashion. It would enable them to know what classes of sale were, in fact, exempt from the proceedings of the proposed new subsection. We hope very much that the Chancellor of the Exchequer or the Attorney-General will accept this Amendment although we recognise that initially it may mean a little extra work for the Treasury, but in the long run it will mean a great deal of relief for honourable firms.

Mr. Selwyn Lloyd

I beg to second the Amendment to the proposed Amendment.

I should also like, if possible, to discuss at the same time the next Amendment, which is at slight variance with this Amendment and which is in the names of my hon. Friend the Member for Chippenham (Mr. Eccles), my hon. Friend the Member for Barnet (Mr. Maudling), and myself. That Amendment is in line 4, at the end, to add: Provided that the Treasury may before or after the conclusion thereof sanction for the purposes of this section any sale or purchase of property falling within any of the provisions of this section or any class of such sales or purchases and this section shall not apply to any sale or purchase or class thereof so sanctioned. The only difference between the two Amendments is that the second one does seem to give the Treasury rather wider power both before and after the conclusion of transactions to sanction them. Otherwise, there is not much difference between the two Amendments. In the Clause as originally drafted, the word "shall" appeared. It stated: … the like consequences shall ensue as would have ensued if the property had been sold for the price which it would have fetched if the transaction had been a transaction between independent persons dealing at arm's length. That is mandatory and is an obvious defect in the Clause, and we are grateful to the Attorney-General for acknowledging that defect and for slightly improving that Clause by putting it at the Commissioners' discretion. It is ridiculous to limit that discretion to individual transactions.

According to the Chancellor's wording the Commissioners have to make a direction with regard to each individual sale. Surely, that cannot be what is meant? All we seek to do in this Amendment is to enable permission to be given and have added a further safeguard to Treasury conditions by seeking a further condition to be given to classes of sale. Whether it is in the form of this Amendment or the succeeding one, we do not greatly care, but I think there is real substance for one or other of the Amendments.

The Attorney-General

The hon. Gentleman was anxious lest the direction had to be given in each and every kind of sale. The Amendment I moved simply provided that the Clause shall not apply to any sale at all unless the Commis sioners do take the initiative and make a direction with regard to it. The proposal about groups or categories of sale is really very difficult to arrange, and I do not see how it could be done. Sales differ almost infinitely in their incidence, and it is practically impossible, as a matter of drafting, to try to group them in categories which you can except. The only way you can test them is by reference to price.

I do not think the proposal made by either hon. Gentlemen, in either the first or the second Amendment, is one we can accept. There are a great many sales. It would be very difficult to give an advance kind of sanction in respect of particular sales, and it would be equally difficult, as a matter of drafting, to take out old proofs of sales. I hope the House will agree it is not feasible to adopt either of the proposals.

The Commissioners, in so far as is possible—and I cannot give any further undertaking—always do try to give such assistance as they can, but I could not possibly go further and commit them in any way to a systematic sanctioning of sales in advance, nor could I undertake to try, by drafting, to formulate categories of sales which would not be within the scope of the Clause.

The object of the Amendment was to prevent the Clause from being vexatiously operated in small cases where the difference between the arm's-length price and the actual price was so small as not to make it a kind of transaction hit at by the Clause. Although I would like to agree if I were able, I feel it is impossible to accept either proposal made.

Viscount Hinchingbrooke

I should have thought that the Attorney-General's argument applied particularly to his own case. If these sales are to be so spasmodic, arising at all sorts of inconsequential times, then the Commissioners of Inland Revenue are going to be no better at pursuing them and discovering them than the Treasury are at laying down the broad conditions under which they are to be taken into account.

I should have thought that it was very much better to have left out of account altogether the idea that the Commissioners of Inland Revenue should have any jurisdiction in this case and, recognising that these are by no means transactions which will be resorted to up and down the country by enormous numbers of firms, to have got the Treasury, as is proposed in the Amendment, to lay down a special class of sale and conditions in accordance therewith. Then anyone who contravened them could be brought up and dealt with. I should have thought that every remark the Attorney-General passed against this Amendment applied with great force against his own Amendment.

Mr. Eccles

I cannot see why the Attorney-General should refuse this Amendment, because, after all, we are only seeking to give the Treasury the power to describe classes of sales. Quite clearly, the whole of the Government's argument is that they really do not know how this Clause is going to work. They have admitted there will be all sorts of transactions that come within its scope. They have given us a concession we pressed for in Committee that the Clause should no longer be mandatory. Yet they will not take the very obvious power of being in a position to set the mind of industry at rest, if and when they discover a general class of sales which could be excepted.

Why not take that power? Experience may well show that there are certain classes of transactions, say, connected with the export trade, where really there could be no question that the companies should be put in a position to carry out these sales without all the time wondering whether or not the Treasury are going to come along and inquire into the price they have made. I do think it is up to the Government when they bring in such ill-digested legislation—which they defend with one set of arguments on the Committee stage and another set on Report—at least to take powers to make it less harmful and irritating to the ordinary trader.

Amendment to the proposed Amendment negatived.

Proposed words there inserted in the Bill.

Schedule.—(ENTERTAINMENTS: REVISED FULL RATES OF DUTY.)
Amount of Payment Rate of Duty
Where the amount of the payment, excluding the amount of duty—
s. d. s. d. s. d.
exceeds 7 and does not exceed 8 … … … … … 1
exceeds 8 and does not exceed 8½ … … … … … 1½
exceeds 8½ and does not exceed 10 … … … … … 2
exceeds 10 and does not exceed 10½ … … … … … 4½
exceeds 10½ and does not exceed 1 0 … … … … … 6
exceeds 1 0 and does not exceed 1 1 … … … … … 8
exceeds 1 1 and does not exceed 1 1½ … … … … … 10½
exceeds 1 1½ and does not exceed 1 2¼ … … … … … 10¾
exceeds 1 2¼ and does not exceed 1 5 … … … … … 1 0
exceeds 1 5 and does not exceed 1 6 … … … … … 1 1
exceeds 1 6 and does not exceed 1 9 … … … … … 1 3
exceeds 1 9 and does not exceed 1 9½ … … … … … 1 3½
exceeds 1 9½ and does not exceed 1 10 … … … … … 1 6
exceeds 1 10 and does not exceed 1 10½ … … … … … 1 6½
exceeds 1 10½ and does not exceed 2 1 … … … … … 1 9
exceeds 2 1 and does not exceed 2 1½ … … … … … 1 9½
exceeds 2 1½ and does not exceed 2 3 … … … … … 1 10
exceeds 2 3 and does not exceed 2 3½ … … … … … 1 10½
exceeds 2 3½ and does not exceed 2 7 … … … … … 2 3
exceeds 2 7 and does not exceed 2 7½ … … … … … 2 3½
exceeds 2 7½ and does not exceed 3 1 … … … … … 2 9
exceeds 3 1 and does not exceed 3 1½ … … … … … 2 9½
exceeds 3 1½ and does not exceed 3 6 … … … … … 2 11
exceeds 3 6 and does not exceed 3 6½ … … … … … 2 11½
exceeds 3 6½ and does not exceed 3 9 … … … … … 3 3
exceeds 3 9 and does not exceed 4 0 … … … … … 3 6
exceeds 4 0 and does not exceed 4 3 … … … … … 3 8
exceeds 4 3 and does not exceed 4 3½ … … … … … 3 8½
exceeds 4 3½ and does not exceed 4 6 … … … … … 4 0
exceeds 4 6 and does not exceed 4 9 … … … … … 4 3
exceeds 4 9 and does not exceed 5 0 … … … … … 4 6
exceeds 5 0 and does not exceed 5 7 … … … … … 4 11
exceeds 5 7 and does not exceed 6 0 … … … … … 5 4
exceeds 6 0 and does not exceed 6 6 … … … … … 5 6
exceeds 6 6 and does not exceed 6 8 … … … … … 5 10
exceeds 6 8 … … … … … 5 10 for the first 6s. 8d. and 3d. for every 3d. or part of 3d. over 6s. 8d. [Mr. Gaitskell.]
Brought up, read the First and Second time, and added to the Bill.