HC Deb 17 June 1953 vol 516 cc993-1006
Mr. Erroll

I beg to move, in page 18, line 41, to leave out from "territory," to the end of line 44.

Clause 19 confers a real benefit on those companies which are unable to remit their overseas profits to this country. There is, however, a rather curious feature in subsection (1) where the individual will be granted remissions under paragraph (a) if he is prevented from transferring the amount by reason of some action of the overseas Government and, under paragraph (b), provided that there is no generally recognised market value in the United Kingdom for the currency of the territory in question.

Paragraph (a) is very good but paragraph (b) is questionable and we seek clarification of what is meant. As the words stand now in the Clause, it looks as though the Government are prepared to sanctify the existence of a "grey" market in currency in this country and I am sure that cannot be their intention. In the first place, the phrase "generally recognised market value" would have the effect that the claim for postponement could not be made where there is no official market for the currency but where, however, there is an unofficial market which is in the literal sense of the term "generally recognised." That is a most undesirable state of affairs to write into a Finance Bill.

Secondly, any rate of exchange which may exist in this generally recognised but highly unofficial market is likely to be a very depreciated rate because of the narrowness and the colour of the market. The general effect, therefore, is that the taxpayer will not be able to claim a postponement of assessment, although the currency is blocked, where there is the unorthodox or "grey" market in which he can convert to sterling, even though at a material loss.

My Amendment may not be perfectly drafted because it is not possible to get an explanation from the Treasury Bench of what was in the mind of the Government when the Clause was drafted. In the Amendment we propose the deletion of most of paragraph (b) in order to seek clarification, because we believe that if that part of the Clause were deleted we would eliminate an undesirable feature of it.

Sir F. Soskice

A number of my hon. Friends and myself put down our names in support of this Amendment and there is little that I desire to say in support of it, because the case has already been made in terms which I should like to adopt. We on this side of the Committee put down the Amendment for precisely the same reason as the hon. Member for Altrincham and Sale (Mr. Erroll) has indicated.

I do not see what is the object of having paragraph (b). I concede that when attempts were made on previous occasions to try to exempt this foreign blocked income, it was felt that there were administrative and other difficulties in the way and that there would be possible avenues for abuse if some such provision as now appears in the Clause were put upon the Statute Book. No doubt the object of paragraph (b) is in some way to block possible abuse or evasion, but its object is not clear to me and I should like to be told more about it.

4.30 p.m.

The object of Clause 19 is to enable a company or a taxpayer who has income which is blocked overseas to avoid having to pay during the year in which that income accrues tax in respect of that overseas income in this country. If the scheme in the Bill is one that can be worked, we can perfectly well see the object of it. Speaking for myself, I would advise my hon. Friends not to divide against it or to oppose the purpose of this Clause; but, it being the purpose to do what I have just said, why is it not enough to provide, as paragraph (a) provides, that the prerequisite for the relief should be that the foreign Government, either by its legislative or executive action, should prevent the foreign income from being brought to this country?

As I have said, there is no doubt a good reason for paragraph (b), but I cannot for the moment see the object of providing, in addition to what I have just said, that there should be no generally recognised market for overseas currency in this country. It occurred to me, in reading the paragraph, that possibly the object was that it was thought that the company should not escape liability for tax during the year in which the income arose if in some way the company could have disposed on the English market of its right, or hope, ultimately to receive that income. I should not have thought that was in the Government's mind, because obviously such right would have to be disposed of at less than the actual amount that would have been received if the sum had remained abroad.

I simply ask the Minister not only to deal with the points made by the hon. Member for Altrincham and Sale when moving the Amendment, but also to explain the general object of this paragraph in the framework of this Clause. I am not saying that there is any objection, but I should be grateful if the Minister would indicate what the Government have in mind in imposing this second prerequisite before the relief can be obtained.

The Economic Secretary to the Treasury (Mr. R. Maudling)

As my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) and the right hon. and learned Member for Neepsend (Sir F. Soskice) know, this is a matter which has been discussed in a number of previous discussions on Finance Bills, and the argument has been put forward, which is now recognised in this Bill—as it has been for some time in practice—that it is wrong to charge people current tax on overseas earnings which they cannot remit to this country.

As the right hon. and learned Gentleman is aware from previous discussions, this is a matter in which the Government and the Treasury have always been careful not to leave any loophole for avoidance and to make sure that any person claiming relief under the provision cannot remit the profit which he has earned abroad. The idea underlying this subsection is that there are certain currencies which are blocked abroad, but which can perfectly legitimately be sold on a perfectly legal market, and there are regular quotations published for those blocked currencies. Therefore, the argument is that in those cases the profits are not entirely unremittable because they can be remitted through this legitimate market.

But I must say that I think the arguments underlying this Amendment are very strong arguments. I am not at all happy about the provision as it stands, and I would agree to reconsider it between now and the Report stage. I should like to make certain that in cases where a company or an individual has remitted profits to this country through the operation of the free market, tax will be paid on them. Subject to making sure on that point and that there are no other unforeseen circumstances, I support the view underlying this Amendment, and I should be grateful if my hon. Friend would withdraw the Amendment on the understanding that between now and the Report stage we will consider the point of view he has put forward.

Mr. J. Grimond (Orkney and Shetland)

I assume that it is not the Government's intention that a company should be forced to sell rights to currency which it may have earned, apart from this remitted income?

Mr. Maudling

Yes, that is one of the objects which underly the submissions put forward, and one which weighs with the Government.

Mr. Stevens

Before my hon. Friend withdraws his Amendment, as I am sure he will do in view of the satisfactory assurance given by the Economic Secretary, may I draw the Economic Secretary's attention to the first few words of subsection (1, a) which state: he is prevented from transferring the amount of the overseas income, not "he is prohibited from transferring." Therefore, I should have thought that reference to a legal market was irrelevant. If one is prevented, it means that one cannot get it in either through a legal or any other method.

Mr. Erroll

In view of the assurance given by my hon. Friend the Economic Secretary, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Chairman

The next five Amendments standing in the name of the right hon. and learned Gentleman appear to me to go together, and they might, therefore, if it is the wish of the Committee, be discussed together.

Sir F. Soskice

I beg to move, in page 19, line 6, after "income," to insert "or any amount thereof."

Though this Amendment and the next four Amendments in lines 6, 11 and 17, immediately following on the Order Paper do not altogether deal with the same points, I think that they could conveniently be discussed together, and therefore I will make the case for them all in one speech.

This Amendment is purely drafting in the sense that subsection (2) would seem to relate to the income as a whole. I simply want to include words which would provide for the case where some of the income of the company or of the individual taxpayer can be remitted, but some cannot. That does not, I think, raise any acute point of controversy, and no doubt the Minister will give consideration to it.

The second point is a bigger question of principle. Unremittable income is defined in subsection (1) as income which the taxpayer is prevented from transferring … either by the laws of that territory or an executive action of its Government or by the impossibility of obtaining foreign currency in that territory. What the second Amendment in page 19, line 6, seeks to do is to introduce a safeguard which, according to my reading of the Clause, would seem to be necessary. My recollection of our previous debates on this sort of topic is that it has been pointed out that it is administratively far from easy to make sure that money which is said by the taxpayer to be unremittable really is in the true sense money which cannot be brought to this country.

As the Clause reads at present, the Commissioners of Inland Revenue have to be satisfied that the income is unremittable in the sense I have just indicated. For example, it would be sufficient to satisfy them that by some executive action of the foreign Government or on the part of some quite minor official of the Government overseas the money had been blocked. It seems to me, if the public revenue is to be adequately safeguarded, that it is necessary that the taxpayer should not simply be able to point to some ipse dixit of a minor official in some overseas department, but should have to establish to the satisfaction of the Commissioners of Inland Revenue that he really had made reasonable endeavours to get the money back.

I do not want to be unduly harsh, but it seems to me, as a practical situation, that we may get a taxpayer here with agents overseas, whether the taxpayer is a limited company or a private individual, and there is a great deal of elbow room between real difficulty in getting money back here and, I will not say a pretended difficulty, but a formal or technical difficulty in the way of the money being remitted.

No doubt, if one just submits an application to the overseas department and does not press the application, one may find oneself met with a refusal, but if, in point of fact, one presses it and argues the case, it may be perfectly possible to get the official in the department of the Treasury of the overseas country to see that there is justice in the requirement of the taxpayer to get the money back to this country, and he may be persuaded to let the money come back.

That is one type of case, but the Committee may easily envisage that in a whole variety of cases it might lead to very unsatisfactory results if all that the taxpayer has to do is to point to some formal prohibition or interdict on the part of some official in the overseas Finance Department. I would put upon him the requirement that, in order to obtain this relief, he should be able to satisfy the Commissioners, as I said, not merely of some formal interdict of that sort but that he really has made reasonable endeavours to overcome the obstacles to the money being brought back to this country. I do not mean every endeavour; I do not want him to have to undertake the most strenuous and exacting endeavours to do it, but reasonable endeavours. That is what I seek to achieve by the second Amendment of the five which I am discussing.

The third Amendment is a drafting one which is dependent upon the first of the five Amendments. I do not think it raises any issue of principle. The fourth is dependent and consequential upon the second of the five Amendments.

The last of the five Amendments raises a completely different point. Subsection (2) provides that the money overseas should not be subject to tax here so long as the Commissioners of Inland Revenue are satisfied that it is unremittable in the sense in which that term is defined, but that when the Commissioners of Inland Revenue cease to be so satisfied then the income overseas becomes subject to tax in this country. What occurred to me in putting down this Amendment was that there might be a taxpayer affected by this provision in each year of, say, 10 years, and for nine of those 10 years the Commissioners of Inland Revenue would be satisfied that it was impossible for him to remit his income but that when the tenth year came, and there might have been a considerable accumulation of income overseas, the situation might arise that the Commissioners were no longer so satisfied.

There might perhaps have been some change in the relationship between this country and the overseas country in question and the Commissioners might say to the taxpayer—this would only apply to a private taxpayer liable to Surtax— "Now you can get this income from overseas." Without some such Amendment as I have put down—the last of the five which I am discussing—it might happen as a result of circumstances such as I have envisaged that in the tenth year all the income accumulated during the previous nine years might become subject to tax in the one year; and, therefore, a person subject to Surtax might find himself subject to a very high rate of Surtax which would take a very large proportion of that accumulated income from him.

That is a position which does not seem to be dealt with in the Clause unless I have misread it. It would seem to be scarcely fair, if the Commissioners take the view for nine years that the income is unremittable, but take a different view in the tenth year, that the whole income should be subject to tax in that year.

I seek by the Amendment to give the person chargeable, the taxpayer, the right by written notice to opt, in a case like that, that the income in the tenth year, in the case I have imagined, should be taxed as if it had accrued year by year. In other words, he should pay no more tax than he would have paid had the income accrued evenly year by year over the nine previous years. That would prevent a very high Surtax rate applying to the whole of the 10 years' income in the tenth year. That is the object of the fifth Amendment, which deals with that topic.

If I have not misread the Clause, that situation is not provided for, and I hope that the Minister who replies will be able to tell us that he is prepared to look at that point to see whether something should not be done by way of alteration of the draft which is now before the Committee.

4.45 p.m.

Mr. Maudling

This group of Amendments appeared on the Order Paper only this morning and I have not been able to give to them quite the full attention which I normally like to give to Amendments in the name of the right hon. and learned Member for Neepsend (Sir F. Soskice). I should like to give him my preliminary reactions to the various important points which he has raised.

The first point, that of the first Amendment, is certainly the same as our intention, but I am advised that the Amendment is not necessary and that the Clause as it stands covers the point. I will, however, look at it more thoroughly in view of the point put by the right hon. and learned Gentleman, but our intention is undoubtedly the same.

The right hon. and learned Gentleman's next point was that any person claiming the benefits of this provision should show conclusively that he has been prevented from transferring the income concerned. That is a point on which we would all agree, and which I remember the right hon. and learned Gentleman arguing with some cogency, when speaking from this Bench on previous Finance Bills. It is certainly important, and we entirely agree that it must be shown that the taxpayer concerned is really prevented from remitting the money in question.

My preliminary reaction is that the Amendment suggested would not add to the strength of the Clause, which at the moment puts on the taxpayer the obligation of showing quite conclusively that he is so prevented. The advice that I have at the moment—as I say, provisional advice—is that we think that by adding the words which the right hon. and learned Gentleman suggests we should, if anything, weaken the protection of the Revenue rather than strengthen it. But again I say we will look at the right hon. and learned Gentleman's suggestion because I think that our object is exactly the same.

The third point is slightly more difficult. As I understand the right hon. and learned Gentleman, it is that he thinks it is wrong that if income has been accruing but unremittable over a period of years, and then becomes remittable, it should be treated as income in the year in which it becomes remittable, and that it should be spread over the years in which it was earned. There is a great deal of force in that point, and I should like to look at it between now and the Report stage, but my impression is that the point is already covered. As I say, however, I will look at it; it is an important point.

The difficulty about the right hon. and learned Gentleman's Amendment is that it uses the phrase shall not exceed the aggregate of the amounts in which the person chargeable would have been assessed in respect of such income had this section not applied to it. The difficulty in practice is how we can assess effectively how much to charge a person in respect of income which is wholly unremittable. It is often argued by taxpayers, and this is one of the reasons for the practice which this Clause sanctifies, that they must be assessed at nil, because the value of the money wholly unremittable is nil. There is a great deal of substance in the three points which the right hon. and learned Gentleman has advanced.

I do not think there is any difference in principle between us in any of these matters, and I would ask him to withdraw the Amendment he has moved and not to move the others on the understanding that between now and the Report stage the points which he has made will be examined.

Sir F. Soskice

I am obliged to the Economic Secretary for what he has said, and I will certainly, in a moment, ask leave to withdraw the Amendment. As to what he has just said about the last Amendment, I do not think that any practical difficulty can arise. If in one year out of the 10 income to the extent of £100 arises overseas that income technically, and apart from, as I understand it, the administrative concession, and it is only administrative, is taxable in respect of the full amount.

Mr. Maudling

The right hon. and learned Gentleman says "income to the extent of £100" but the income will be expressed in terms of, say, pesos. The argument is, how many pounds are represented by the pesos; that is the difficulty.

Sir F. Soskice

As the Economic Secretary says he is going to consider the point I will not argue it further now, but I do not agree with what he has just said. I should have thought it would be perfectly easy, but as he says he will consider the point, that will suffice for the time being. I thank him, and beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Captain J. A. L. Duncan (South Angus)

I wish to say a few words about this Clause. This is my first intervention on the Finance Bill. I have had experience of this matter, not only myself but through complaints from my constituents, and I wish to welcome the Clause as an attempt to deal with what has for a long time been a genuine grievance for men who have capital in overseas territories the income on which is unremittable.

What I want to make quite certain from my hon. Friend the Economic Secretary is how the Clause will be interpreted. In answer to the last series of Amendments, he said that money must, in practice, be prevented from being remitted. Subsection (1, b) speaks of currency which has no generally recognised market value in the United Kingdom and in subsection (2) the taxpayer has to show to the satisfaction of the Commissioners of Inland Revenue that he cannot get his money over.

What has happened in the past is that when the taxpayer has tried to show that the income has been unremittable, the Inland Revenue have pointed to one quotation on the market for one day in the year of assessment and said that therefore the income was remittable for tax purposes during the year. How they can obtain a quotation in the market, I do not know. The Foreign Office, however, have had arrangements to pay the salaries and wages of Foreign Office employees in those countries in the currency of the country in question. The firm or individual has, in return, been paid sterling in London. For that reason they have opened the door in some way for the quotation of a rate of exchange for an isolated transaction of that kind.

There may be also isolated transactions arranged through the Treasury for specific market deals which may be in the national interest, and it may well be that for those single isolated transactions, taking place once in a year, the market eventually gets a quotation on the ground that there was a market quotation that year. In that case, the Commissioners of Inland Revenue say that the money was remittable. From the point of view of the taxpayer, however, it is quite impossible to remit, and in the case of the Argentine dividends have been paid two years late. Nevertheless, in the current case of a constituent of mine, the Inland Revenue are still charging Income Tax and Surtax on Argentine pesos which are still unremittable and where the income in the Argentine is two years late.

I hope, therefore, that the strict references in the Clause and the remarks of my hon. Friend the Economic Secretary will be much more sympathetically administered by the Inland Revenue in the future than they have been in the past, and that as a result of the Clause, which is designed to make a real contribution to a real difficulty in the case of many people who may have either small or large sums in the Argentine— railway pensioners, for example—people may more easily be able to avoid having to pay tax on money which, in practice, it is impossible for them to receive. I hope that the Commissioners of Inland Revenue will not rely on a single market quotation in a single year and then refuse the relief to which a taxpayer is entitled.

Mr. Ian Horobin (Oldham, East)

I wish to add a word in support of the point which has been made. The question of remittability must really be a question of fact. I do not think that there is any difference between the two sides of the Committee that where somebody who earns an income abroad can get it home he should pay the proper tax upon it. The question is purely a matter of fact.

People who do not deal in foreign exchange do not always realise the incredible tangle that may arise. There are something like between 50 or 60 different kinds of sterling, and we think that sterling is a fairly good currency. Some of the currencies in South America, for instance, vary not only from day to day, but from commodity to commodity. It is quite useless to say that at a certain date there was a certain type of transaction and exchange rate.

What I impress upon the Economic Secretary—I think he has said that he would meet us in this matter—is that it is the first part of the Clause that matters. If transferability is prevented, the taxpayer should have the benefit. It is purely a matter of fact, and no administrative question of what exchange was quoted on a particular day for a certain kind of transaction has any relevance. All that the taxpayer should prove is that the pesos. for example, in question could not be brought back to this country. An individual who can prove that should have the benefit of the Clause. My bon. Friend, I believe, has said that that is his intention, but I strongly impress upon him in support of what has been said, and what, I believe, is supported on the benches opposite, is that that is the only burden of proof which should be put upon the taxpayer. If he cannot prove that, he must pay the tax. If he can prove it, he should have the benefit of it, and that is all he should be required to do.

Mr. G. R. Mitchison (Kettering)

Finance Bills seem to have numbers of Clauses stopping up loopholes or meeting hardships. In this Bill there are a great many of them to meet hardships. This is one upon which we are all agreed in principle, and I agree with what the hon. Member for Oldham, East (Mr. Horobin) has said. There is, however, one thing that I want to point out to him.

What has to happen in this case is that remittance has to be prevented, or may be prevented, by an executive action of a foreign Government. The kind of case that may arise is that some permission or other is necessary, and often is necessary, for the remittance in question. In a case like that it is, no doubt, a question of fact, but the fact which must be established is that one really is prevented; and in order to establish that, one must show that he really tried.

I have always understood that some foreign Governments, and, perhaps, some in this country, positively liked being asked again and again before giving their consent. That is the kind of thing that one has in mind. The hon. Member for Oldham, East will find that his hon. Friend from Scotland, the hon. Member for Dumfries (Mr. N. Macpherson) who is sitting beside him, remembers all about Bruce and the spider and the honest little proverb: If at first you don't succeed. Try, try, try again. That ought to go into the Clause.

Mr. Maudling

These important points are largely covered by the remarks I have already made. The Clause deals really with currencies that are blocked, and the first matter when a currency is blocked is to see that tax should not be collected on it. Blocked currencies, of course, can often be disposed of on other markets. That is the point that arises under subsection (I, b) and affects, I think, what my hon. Friend the Member for Oldham, East (Mr. Horobin) has in mind. As I said earlier, my right hon. Friend will consider this point very carefully before the Report stage.

Mr. Niall Macpherson (Dumfries)

In that case, would the rate of exchange for taxation purposes be the same rate of exchange at which it is possible to dispose of the blocked currencies? Otherwise, there might easily be a serious injustice. In my experience, it has not been normally the custom to calculate the profit for the purposes of British Income Tax at the current rate of exchange. It was quite possible, by dealing in the compensation markets, to get exchange at, possibly, a 50 per cent. discount. This would mean that there was no point in remitting the money back to this country because it would all go for the payment of taxation to the Treasury. That would not be reasonable, and I hope my hon. Friend the Economic Secretary can give the assurance that where it is possible to remit the money, the rate of exchange for taxation purposes shall be the rate of exchange at which the money is remitted.

5.0 p.m.

Mr. Maudling

That is certainly a valid point. If the subsection were to remain in the Bill the assessment on the taxpayer would be on the sterling received and not on the foreign exchange at the official rate at which sterling is received.

Question put, and agreed to.

Clause ordered to stand part of the Bill.