§ The Solicitor-General (Sir Jocelyn Simon)
I beg to move, in page 17, line 24, to leave out "forms a substantial part of the value of the" and to insert: 280or the aggregate value of that interest and any interest which the company so has at that time in any other building (not being a building completed more than six years before that time) the erection of which was carried out or secured by the company, amounts to one-fifth or more of the net".The Committee will remember that Clause 21 applies Clause 20 to a special case of a building society whose memorandum and articles of association are so framed that it can be argued that its purpose throughout was to hold the building as an investment. Clause 21 (1) imposes a charge to tax by reason of certain sales of shares in such a company, and subsection (3) imposes a charge on the liquidation of such a company. But both apply under the Clause as drawn where the value of the interest in the building forms a substantial part of the value of the assets of the company.
Before the hon. and learned Member for Kettering (Mr. Mitchison) can say it, I accept that the point with which we are now dealing was first thought of by my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens). He asked what was the meaning of the words "substantial part". I said that it would vary in the consideration of the court according to the circumstances, and he drew attention to the fact that it might lead to uncertainty and difficulties in the interpretation.
I promised to consider the point and my right hon. Friend has decided that it should be met by the substitution in both Clauses 20 and 21—and we shall be dealing with Clause 20 on Report—of a definition based on a specified proportion, actually one-fifth or more, of the net assets. But once one gets away from the phrase "substantial part", which allows the court to look at the circumstances, there is the possibility that one is opening a loophole to evasion if one stops there. One might have a company which is operating on a large scale and at the critical time has more than five buildings which it can dispose of in a way at which the Clause aims. It might be in a position to maintain that not one of those buildings looked at by itself formed a substantial part of its assets. We have, therefore, dealt with that point as well, and it is because we deal with it that the matter has to be dealt with on recommittal.
It would be for the convenience of the Committee if we could discuss this 281 Amendment with the following Amendments which come with it, because I have dealt with all these points in my observations: In page 17, line 26, leave out "in the building is" and insert "or interests are".
In line 22, after "building", insert:
or any such other building as aforesaid.
In line 36, after "building" insert:
or any such other building as aforesaid."
In page 18, line 6, leave out "formed a substantial part of the value of the" and insert:
or the aggregate value of the interest and any interest which the company so had immediately before that time in any other building (not being a building completed more than six years before that time) the erection of which was carried out or secured by the company, amounted to one-fifth or more of the net.
§ In line 12, after "interest", insert "or interests".
§ In line 14, after "building", insert "or buildings".
§ Mr. J. T. Price (Westhoughton)
I intervene to break my lance with the Solicitor-General about the way in which he dismisses the term "substantial". I am not out of sympathy with the purpose of tie Amendment, but when he says that the question of "substantial" must be construed in relation to the circumstances I understand that that, of course, also is a piece of administration, but he says that all these arguments will be referred to the lower court.
This is a favourite device of the Treasury in getting away with administrative murder in all sorts of ways. It is not sufficient to say that some learned magistrate or judge will be called upon to construe what is meant by "substantial". Before any matter becomes the subject of any kind of litigation the Revenue officers who have to make administrative decisions have to consider what they mean by "substantial". It is in the general context of Government policy to suggest in all these matters, when they are challenged from whatever quarter, that some judge will be able to construe this in a fair and judicial manner, but before a judge is called upon to do so some functionary of a 282 Department will be called upon to construe it. 5.45 p.m.
It is not in relation only to these matters that I raise my voice mildly in protest. In the generality of cases there is a tendency for a highly-placed Minister of the Crown to dismiss the fact that power is given to administrators in Government Departments to construe these things. Whilst one must have common sense and a sense of balance in all these matters, to give such wide discretion very often to people called upon to administer very weighty problems is a highly dangerous thing for Parliament to do. I rose to say that and have said it in perhaps a more elaborate way than I had thought of doing so, but it wants saying frequently that we are not entitled to assume that these matters will go in the majority of cases to judges. They will go to functionaries in Government Departments who will use discretion in an arbitrary manner.
§ Mr. Geoffrey Stevens (Portsmouth, Langstone)
It was with a view to eliminating uncertainty and administrative difficulties that in Committee I suggested that "substantial" is a word that can be interpreted by different people in different ways in different circumstances, and I am grateful to my hon. and learned Friend the Solicitor-General for providing more definite words which will have that very result so that there will be less difficulty in administering these cases.
§ Mr. Diamond
This is a very valid point indeed. The hon. Member for Portsmouth, Langstone (Mr. Stevens), who everybody knows is a chartered accountant, thought of this point because, of course, if the Government think that tax will be collected by process of going to court they clearly have an utterly incomplete idea of the way in which the matter works. If people have to go to court on more than a very tiny fraction of the cases involved, the tax collecting machine will come to a full stop.
This is why I welcome the hon. Member's suggestion that it should be possible far a difficult point to be cleared as between the taxpayer or his agents and the inspector of taxes through knowing what it is that Parliament had in mind and not having to go to the extent in 283 many cases of resorting to the courts and having the courts decide what is or what is not the meaning of "substantial" and, what is even worse, having the threat of going to law which the Revenue can afford and which the taxpayer mostly cannot. This threat of going to law over the taxpayer or his agents serves to get an unfair advantage in the transaction. Therefore, I welcome the suggestion made by the hon. Member for Langstone, and I am sure that the Government have been wise to adopt it.
I think it is a very acceptable definition of "substantial". I was afraid that there might be some argument in some quarters of the Committee that the figure was too low. However, I think it is the right figure. I am sure that the Amendment will prove acceptable to the Committee.
§ Mr. Mitchison
Like my hon. Friend the Member for Gloucester (Mr. Diamond), I might have felt a little doubtful about the figure, but not, I think, in anti-avoidance legislation.
This is a hybrid Amendment. Part of it comes, it is true, from the discussions in Committee—almost the first clear case that we have had, although I think there was one other. The second part does not. The point was always there as to whether one was to count in "any other building" in deciding whether it was a substantial part or one-fifth part of the total. I do not see how a court could have taken "any other building" on the original language of the Clause. I should require at least three English Law Officers to convince me that the court could have done so, and there are only two.
The reason, or one of the reasons, is, I think, that when one comes to look at the other buildings which are to be taken into account, they are not other buildings in which the company has an interest. They cannot be. They are the more recently built group of buildings and have to be defined accordingly as buildings within the last six years. I feel certain that some direction of this sort was originally required to stop up a loophole in the Clause and that this is yet another case where the Government in framing tax avoidance legislation failed to cover a loophole in their own provisions and are now at the last 284 moment doing so. Better late than never, and, of course, we do not object to the Amendment.
Like other hon. Members, I welcome this provision. There is one small point that the Government might consider, and that concerns net assets. Previously we have been talking about "assets", which are more easily capable of definition. We are now talking about "net assets". It would perhaps make the Clause even more precise if we inserted a definition of "net assets".
In Clause 20, in which we deal with the value of assets, various rules are laid down about the value of capital assets and so on. In this Clause we have nothing like that. I imagine that in marginal cases where the asset being disposed of was about the 20 per cent. level there might be a certain amount of difficulty if there were no precise definition of "net assets". This is not likely to happen in many cases, perhaps, but it is a point worth considering.
§ Amendment agreed to.
§ Further Amendments made: In page 17, line 26, leave out "in the building is" and insert "or interests are".
In line 33, after "building", insert:
or any such other building as aforesaid".
In line 36, after "building", insert:
or any such other building as aforesaid".
§ Mr. Barber
I beg to move, in page 17, line 37, at the end to insert:or (c) has sold or created such an interest to or in favour of any person, and the purchaser of the shares or any such associated company acquires the interest, either before the sale of the shares or after the sale in pursuance of arrangements made not later than the sale,".The purpose of this Amendment and the next Amendment is to strengthen subsection (2) of the Clause. The subsection as drafted could apparently be avoided by the device of selling a building to an intermediary, and, being an intermediary who was not associated within the meaning of the Clause with either the vendor or the purchaser, the intermediary would then sell to the purchaser, probably taking a suitable commission for himself on the way.
The Amendment, accordingly, provides that if an interest in a building 285 has been sold by a company to any person and the purchaser of the shares or his associated company subsequently acquires the interest either before the sale of the shares or after the sale in pursuance of arrangements which were made not later than the sale of the shares, subsection (1) shall still apply as if the interest in the building belonged to the company at the time when the shares were sold. This will make it impossible to deploy that sort of device. The next Amendment is consequential.
§ Mr. Diamond
Of course, we accept this as an improvement. There is only one question that I should like to address to the Economic Secretary. As this is an improvement in our anti-tax avoidance legislation which has occurred to the Government after thinking about the matter, and it has taken a few weeks, perhaps, or a few days to think of this, how many more such Amendments would occur to the Government if they were given further time and how many more Amendments will be found to be necessary during the course of the next 3, 6, 9 or 12 months, or before we get the next Finance Bill?
If on this occasion and every previous occasion it has been shown to be absolutely necessary as between the Second Reading and the Committee stage of the Finance Bill to have second, third or fourth thoughts on tightening up these anti-tax avoidance provisions, does it not logically follow that it will be found necessary to do that again in the future? When are we to come to a system of taxation under which this sort of non-sense is not necessary time and time again?
§ Mr. Mitchison
There really is point in that question by my hon. Friend the Member for Gloucester (Mr. Diamond). If the Economic Secretary is unwilling to answer in that form, perhaps I might put in another.
This is, of course, a case where a particular method of evasion was thought of, just as the previous set of Amendments showed a certain loophole. Has the Treasury a purely seasonal interest in loopholes and evasions? Is it that at this time of the year the minds of those at the Treasury are more than usually alert to the possibilities of these things, 286 or do they run on month by month with fresh inspirations about avoidance or evasion flashing before them?
How comes it? Is there a department —I suppose there must be—which considers these things? Are those at the Treasury moved by the impulses of early summer particularly, or do they equally think of this kind of thing in the winter? The hon. Gentleman will see that there is a serious point in the question asked by my hon. Friend. If these things are not sufficiently thought of at the time of the preparation of the Bill and even in Committee, when the collective intellect of the Government, or at any late the financial part of it, is directed to consider these things, surely it demonstrates that we want something more than this kind of provision if we are to deal with this kind of difficulty.
Clause 21 (2, b) at present deals with the case of creating an interest in favour of "that person"—I omit the words "associated company" for the sake of simplicity. The words we are now being asked to insert deal with the creating of an interest in favour of "any person," and subsequently the purchaser of the shares acquires the interest. It must be the case, if that is so, that he need not acquire the interest from the last mentioned person in favour of whom it was created but may acquire it through a chain of people. Is that what is intended? What, in short, does "interest" mean? 6.0 p.m.
Does it mean the particular interest that was created by the company, the particular interest that rested with the person who is mentioned in line 1 of this Amendment? Or does it mean that there may be a sale or creation of interest? If it afterwards gets into the hands of the purchaser of the shares, or the associated company, do the provisions of this subsection operate? Is it intended to deal with a whole chain of people, some of whom may take the commission which aroused the not unnatural suspicions of the Solicitor-General, who saw the possibility in the circumstances? Some may resemble the aunt of the hon. Member for Basingstoke (Mr. Denzil Freeth) whom we accepted during the Committee proceedings as the typical innocent person.
§ Mr. Chapman
Are the Government still permanently closed to the suggestions that we have made from this side of the Committee year after year, about stopping up these loopholes? Every time we get the Chancellor of the Exchequer coming into the Committee with his Budget he tells us of loopholes. I can almost remember the words. He says: "I regret to have to inform the Committee that since I opened my last Budget ways have been found …" He then explains how various tax avoiders have discovered loopholes not only in last year's Budget but in the previous year's as well.
We then get my hon. Friend the Member for Gloucester (Mr. Diamond) saying, "I told you so. When we passed this last year I explained how we would find that this year we would have exactly these loopholes." Then the Chancellor replies: "We are absolutely certain that we have found the last loophole."
§ Mr. Chapman
The right hon. Gentleman has not done that but he has, every year, said, "We have sufficient confidence that we have stopped enough loopholes to decide not to accept the Opposition's alternative approach to this problem." Despite all that, he comes along in the following year with a few more loopholes and proceeds to stop them up. The Government have now found two loopholes which they hope this Clause will stop up. A number of us who know this type of activity are convinced that there will be more loopholes by next year. Do the Government still firmly declare that their faces are completely set against our method of approach to this problem? Are they going on stopping up loopholes every year, saying that many more millions of £s have been made in this way and that they will go on trying their method instead of our method of proceeding more generally against these evasive devices and declaring them illegal?
§ Mr. Barber
While I am sure the Committee is interested in what the hon. Member for Birmingham, Northfield (Mr. Chapman) has been saying, it would hardly be appropriate for me, on an Amendment of this kind, to go into the more general question of whether or not 288 we should have such things as a capital gains tax.
The hon. and learned Member for Kettering (Mr. Mitchison) raised a technical point, asking what was the meaning of the word "interest" in the Amendment, and whether or not this would apply to a series of purchases, sales or transfers of property. The interest which is referred to is the interest mentioned in line 23, page 17. The hon. and learned Gentleman is correct in thinking that this would cover a series of transactions, sales and transfers.
I should point out, however—although I do not think that he personally thought this—that it would not follow that any intermediary would be in any way penalised, because the person who is charged to tax under this Clause is the person or company which sells the shares. It would apply to a series of transactions, always assuming that the sale of the interest, or the creation of the interest, was made in the words of the concluding line of the Amendment…in pursuance of arrangements made not later than the sale,".In other words it could not have been affected by a series of transactions, all made for the purpose of eventually putting the interest in the hands of an ultimate purchaser.
§ Mr. Mitchison
That lets out the aunt unless one keeps her in the dark. What happens if one splits up the interest and then it is passed by various people, to whom it has been sold, to the company? Is that covered?
§ Mr. Barber
Without notice of that point, I would think that if one split it up, each part would be an interest within the meaning of these words and so, if the other conditions of the Clause were satisfied, it would be caught.
Perhaps I might make a general observation about the stopping up of loopholes. It is fair to mention that throughout the year the Inland Revenue is concerned with the avoidance devices which come to its notice. What we are concerned with here is trying to limit, or, if possible, to do away with as far as we can, the avoidance devices which might conceivably arise out of this Clause, which has not hitherto operated. It is not an easy matter. We do our best. We receive advice not only from hon. 289 Members but from many other sources and we look into each possibility and deal with it as best we can.
§ Amendment agreed to.
§ Further Amendment made: In page 17, line 41, after "(b)", insert "or"(c)".—[Mr Barber.]
§ Mr. Barber
I beg to move, in page 17, line 44, at end to insert:(3) Where a building has been or has begun to be erected by a company on land belonging to an associated company, and after the erection has been begun and not later than six years after its completion a person acquires control of the first company, then as respects sales to that person of shares in the company owning the land (whether effected before or after that person acquires control of the first company) the foregoing subsections shall apply as they apply to such a company as is therein mentioned but with the substitution for references to an interest in the building of references to an interest in the land.This Amendment is designed to stop the possible way of avoiding Clause 21. The Clause applies to the sale of the shares in a company whose activities consist of or include… the erection or the securing of the erection of a building …It has been pointed out that operators could set up two companies—one to put up the building and the other to own or acquire a lease of the land on which the building is to be erected. They could then sell the shares in the building company to the ultimate purchaser at a low price, so that there would be little or no profit charged under this Clause, and then cream off profit by selling shares in the land-owning company at a high price.
The Amendment accordingly provide that, where a company within the scope of Clause 21 has put up a building on land belonging to an associated company, subsections (1) and (2) shall apply to the land-owning company as they apply to the building company. The result will be that it will not be possible by that device to avoid these provisions.
§ Mr. Diamond
This is a complicated matter. It may well be that what I am about to ask the Economic Secretary will be greater nonsense than what I usually say. Does the hon. Gentleman think that he has got this Amendment in the right place? He has got it after the first two subsections so as to cover trans- 290 actions which they describe. However, the existing subsection deals with the avoidance of the effects of this legislation by the process of liquidation. I am concerned about whether in fact the process of liquidation is still not left as a loophole for the company which has attempted to avoid the impact of this Clause by having its land held by an associated company.
What the Amendment seeks to do is to stop up the loophole of the building company and the land-owning company being two separate entities and the profit being taken on the land-owning company as a sale. It does not deal with the liquidation of the land-owning company. One way of avoiding taxable profit on the trading transaction is to sell the shares in the company and turn it into a capital profit on the shares. Another way is to liquidate and thereby avoid a surplus which is a trading surplus liable to taxation. The Government have seen this and in their existing subsection (3) have sought to catch companies in subsections (1) and (2) which try to avoid the impact of the consequence of the Clause by liquidating. I hope I am making myself clear to the Economic Secretary.
Would it not be better for this Amendment to catch liquidation as well as the present proposed method of selling the land separately? In short, the Government have sought to stop one of the alternative methods of tax avoidance in this particular transaction, but not both. The Bill as drafted stops both where there is one company owning land and building. Should not the Government try to stop both where there are two companies, one owning land and one owning the building?
I hope that I have made that question clear and my doubts clear. The Amendment seems acceptable. It is, in the same way as the previous Amendment, second thoughts on stopping up loopholes and, of course, human beings have further thoughts and the longer they think about things, the more that is so. If only there were plenty of time to consider the matter, there would no doubt be more Amendments. If this consideration had gone on for a month instead of a week after the last stage, there would be more Amendments showing how ridiculous it is to attempt effectively to stop up loopholes in this patchwork fashion.
§ 6.15 p.m.
§ Mr. Chapman
Following on what my hon. Friend the Member for Gloucester (Mr. Diamond) has just said, may I ask a question about the words "associated company"? I am not at all happy with the Amendment with these words in it, unless there is special justification for them. If someone sets out to evade the intention of the Clause in this way, then it is quite open to them to do so by an arrangement involving another company but without that company necessarily being an associated company. There is possibly an immediate loophole again created of doing it through independent companies which are not associated but which are amenable to one sort of control. I am beginning to think that this is becoming like a will-o'-the-wisp and that we will go on chasing like this. I ask for a serious reply on this issue. I am sure it is possible to manipulate this sort of transaction without the companies being associated. The whole intention of the Clause will be evaded if that is so.
§ Mr. Millan
I support what my hon. Friends have said. This matter was raised in Committee when we were dealing with the definition of associated companies in Clause 41. At that time, the Solicitor-General explained the term "associated companies" completely in shareholding terms. It was a question of the actual shareholding. Clause 41 says:…companies shall be treated as associated companies if one has control of the other or others, or any person has control of both or all of them.The hon. and learned Gentleman said that in interpreting the word "control" one had regard purely and simply to the shareholding position.
As my hon. Friend the Member for Birmingham, Northfield (Mr. Chapman) said, it is perfectly possible for companies to be associated in a completely informal sense, therefore escaping this kind of Amendment. All that is required is two individuals or two groups of individuals, to come to some sort of an informal arrangement, one of the groups or one of the persons owning the land and the other erecting the building. There is an informal arrangement to split the difference, the tax-free profit, in one way or another.
292 The Government will have to study this question of associated companies. I do not want to anticipate a later discussion, but I notice that in the Amendment to Clause 23, page 20, line 42, we have, in a different context, a very much wider definition of association in the sense that we are talking about—two or more persons acting together…to secure a certain thing. In dealing with the problem of associated companies, that is the kind of definition we want. I hope that the Government will look at this seriously. I am sure that this is one of the things about which they will come back next year and say, "Unfortunately, we have discovered one of the ways of evading what we proposed last year; it is for people to get together without any formal shareholding relationship." We do not want that to happen. It can be put right this year and I hope that the right hon. Gentleman will study our suggestions.
§ Mr. J. T. Price
Like my hon. Friends, I have some sympathy with the intentions of the Amendment. However, I just do not believe that it will achieve its purpose. This debate illustrates, as well as anything can, another aspect of all these manipulative operations which the Treasury has tried to stop up in one way or another. It also illustrates the rottenness of the society in which we live and the diabolical ingenuity with which highly professional people will apply their brains to defeating the purpose of the Legislature.
I draw attention to the fact that where taxation is involved and where there may be a dispute between the taxpayer and the Inland Revenue, then, I have always understood, the Statute of Limitations does not apply and there is no limit on the period over which it is possible to recover money properly due to the Treasury. However, freely to construe the Amendment, its intention is that if one company takes over another, that will not apply not later than six years after the erection of the building.
Why introduce the principle contained in the Statute of Limitations into this sort of legislation? No such limitation applies in regard to the other transactions which the right hon. Gentleman's officers have to deal with. Is this not another example of the process to which we have been objecting year after year? 293 I remember, five years ago at least, drafting a very imperfect Amendment which may have been unsatisfactory in its text but which provided that if a man engaged in transactions designed to defeat the Inland Revenue and avoid tax, those transactions should be illegal acts. The Treasury has always resisted this approach to the problem.
Year after year there is the superficial appearance of a sustained effort by various Treasury Ministers to deal with this question. They stop up one loophole and set in motion the fertile brains of a lot of gentlemen in the City of London who find other loopholes by which to defeat the Treasury's purposes. The Chancellor of the Exchequer tells us that he has the best intentions, and that he wants to do a certain thing, but when he locks the pantry door to make secure the property of the Crown in order to stop these persons breaking in he always, kindly and courteously, leaves the key under the mat. These people have only to pick it up in order to open the door and go off again on next year's picnic.
We need a much more radical and fundamental approach to the problem. I hope that the Chancellor or the Solicitor-General will explain the reference to the limitation of six years. If two people in associated companies arrange tacitly between themselves certain transactions of this kind in order to defeat the Inland Revenue they will not be baulked by this provision. They will see that the matter is disclosed after six years have elapsed, when they are outside the net set by the provision. I do not see the logic behind its insertion. If a contract is made, under the ordinary provisions of the law it is still a contract whether or not it is written. It needs only to be tacit to avoid being caught by this provision. May we have some further enlightenment on this point?
§ Mr. Hale
It may be for the convenience of the Committee if I make my point before the Financial Secretary replies. First, I want to put in a word for the tax dodgers. I would not pay a single penny to the Government that I could not afford to pay, and I cannot see why this sort of thing should be regarded as a crime. I cannot see why a Government who threw away £100 million on a useless weapon which will not work should expect every loyal 294 citizen to contribute every farthing they ask him, without argument. On the other hand, I agree that it is our duty to see that the law is obeyed. On the whole, all Her Majesty's citizens pay the amount which is properly levied upon them without indulging in fantastic devices to avoid it.
We are seeking to catch mainly certain people who dwell in the City of London; we do not possess such people in Oldham. I completely agree with my hon. Friend on this point. I have not devoted my mind to the Clause, but I should have thought there were about sixteen obvious ways of avoiding its provisions. Before enumerating them, however, I want to go back to a previous discussion. We are now discussing the eighth or ninth Amendment, but we shall have no Second Reading of the Clause, nor shall we have a discussion on the Question, That the Clause, as amended, stand part of the Bill. I do not believe that there are ten Members who think that they are absolutely clear in their minds as to what the Clause will mean, with its Amendments, and I am prepared to bet a substantial sum of money that 90 per cent. of those who do are wrong in their belief.
We can have two separate companies with no interlocking share arrangement. They can be within the same family of persons, operating together but carrying on different trades. Instead of having a number of companies in which 50 per cent. of the shares are owned by two people we can have two companies in one of which one man has 90 per cent. of the shares and in the other—a quite separate company—another man has 90 per cent. of the shares. It is said that there must be a sale within six years, but in future there will not be a sale within six years; there will be a lease with an option to purchase. That lease with an option to purchase is absolutely safe; it cannot be broken, and six years and one day from the time of the agreement that option will be exercised. A note will be sent from Jones to Brown, and Brown will write a polite note back saying, "We are sorry you have done it, but we realise that there is a good saving in tax." So it will go on. There are only two ways of dealing with this matter, and they have been put to the Chancellor time after time.
295 We were told that this Budget would tackle this matter. I do not know how many thousands of pounds of fees will be spent in trying to find out, through the courts, what the Clause means. When a Committee has had to work in conditions like these history has shown time after time that the courts have said that a relevant provision passed by the Committee does not mean what the Committee was told it meant. Quite properly, our courts have no power to have regard to what is said here; they have only the right to determine what words mean in their legal sense when they are embodied in the Statutes.
I have grave doubts whether the words mean what the Solicitor-General thinks they mean, and I am as reasonably certain as I can be that even if they do mean what he says they will not suffice for more than a few days to prevent the form of tax avoidance which he has in mind, which can so obviously and easily be circumvented.
§ Mr. Barber
The hon. Member for Westhoughton (Mr. J. T. Price) asked why we imposed the limitation of six years. I explained this when we were in Committee before, but I will add now, for his benefit, that the purpose is to catch a sale of a building which is in reality a trading asset but which the operator is trying to sell under the guise of a capital asset. Consequently, we have to fix a period. It is nothing to do with the Statute of Limitations.
§ Mr. J. T. Price
It is a rather remarkable coincidence that the limitation embodied in the Clause coincides with the limitation under the Statute of Limitations.
§ Mr. Barber
I am advised by my hon. and learned Friend that the period in the Statute of Limitations is three years. When I first considered the Clause in draft no mention was made to me that it was intended to follow the Statute of Limitations.
§ Mr. Douglas Houghton (Sowerby)
The period of six years is a hallowed one in Income Tax law and administration.
§ Mr. Barber
Reference was also made to the possibility of avoidance because of the reference to "associated company". It has been pointed out that Clause 41 provides that: 296For the purpose of this Part of this Act two or more companies shall be treated as associated companies if one has control of the other or others, or any person has control of both or all of them.My hon. and learned Friend has explained what was meant by "control" in those circumstances. I believe he said it was shareholding control. When the Bill was in draft we considered whether this definition of associated companies would be adequate, and from our past experience we came to the conclusion that it would be.
§ 6.30 p.m.
§ Mr. Chapman
That does not answer the point. The hon. Gentleman is admitting that the Clause and the Amendment as drafted can catch only within a very narrow definition of an associated company. We are saying that this will be done by companies not in association in the strict legal definition. Is the hon. Gentleman going to do anything about that?
§ Mr. Barber
I take the point contained in the hon. Gentleman's observation, but obviously there is a limit to which one can go and to which it would be right to go, in dealing with the various forms of association. Obviously, if we are to apply such provisions as these, which are very stringent, there must be some limit to the form of association covered by the Clause. I can only say again that I have made inquiries and from our experience we consider that this definition is sufficient to catch the people whom we are seeking to catch.
§ Mr. Barber
In the Amendment the hon. Gentleman will see that the expression island belonging to an associated company"—
§ Mr. Barber
—which is very important. Those words were carefully chosen, because, obviously, they catch the company which has not acquired the freehold of the land, but has acquired a lease perhaps—
§ Mr. Barber
Yes, but if the hon. Gentleman will look he will see that it refers to where the building was begunto be erected by a company on land belonging to an associated company".
§ Mr. Barber
I have read on—and that being the case, this will cover the particular case, and these words will achieve that.
§ Mr. Hale
With respect to the hon. Gentleman, it cuts it out completely. The reference is to a company owning the land, the land belonging to the same company. If there is a company with a 959-year lease the company owning the land is the company having the reversion. On the hon. Gentleman's own definition—which, incidentally, I suggest is the wrong definition—the company to which it belongs is the company to which it is leased.
§ Mr. Diamond
Has the Economic Secretary sat down or is he going to reply to that point which I raised?
§ Mr. Barber
I have made inquiries of my hon. and learned Friend and I am told that the word "owning" as well as the words "belonging to" would cover a long lease of the land.
§ Mr. Diamond
I addressed what I thought was a perfectly serious point to the Economic Secretary about whether this Clause was in the wrong place and whether it did not catch what the Government were seeking to catch. I should have thought that the hon. Gentleman had had ample time to consider it and that we might be told whether or not that is caught by the Clause, and if it is not, quite caught, that they will think about it again. I do not know whether the hon. Gentleman is in a position to answer, but in order to give him further time to take advice on the matter, let me return to the point raised by my hon. Friend with regard to this question of associated companies.
298 This is the second time the Government have taken the attitude of sticking to an interpretation of this matter which depends purely on a formal connection between two companies. I hope that they will not go on with this absurdity when they know that in a year's time they will have to put the matter right. It is not a question of conjecture that people will avoid this provision by having an informal connection. It is a question of fact that they are avoiding it by having informal connections.
Why should not people, if they are getting money for nothing, be prepared to rely on an agreement, which, admittedly, they cannot produce in court? They are prepared to rely on such an agreement. If, however, the other party, not being a gentleman, is not prepared to honour it—because he does not belong to the old boy's league —the swag is not shared. If he does honour it the swag is shared and the intention of Parliament is avoided.
It is wrong for the Government to stick to the absurdly artificial limit which has been put on the word "association". Here there is an attempt to avoid tax. The Government, by the words in a later Amendment, to which it would be out of order for me to refer now, show that they are not married to this. Of course, there is association where one has a technical and formal association by means of shares or voting power, or in some other way; but there are all sorts of other forms of association, as we know. People get together, when it is worth while from a business point of view to do so, in order to make capital or profit and share it between themselves.
There is nothing in the law to prevent them from doing so, and the more the hon. Gentleman continues to refer to this, the more he is signposting and highlighting the road for would-be tax avoiders. It is not a question of putting the key under the mat but rather of hanging it on the knocker of the front door with a searchlight playing on it, so that all may see it from a distance.
I suggest that we should not allow the Government to continue to take this absurdly limited point of view when it is only a question of saying to the Parliamentary draftsman, "Give us a more comprehensive drafting". We suggested 299 one at the earlier stages when my hon. Friend the Member for Glasgow, Graigton (Mr. Millan) and I put down an Amendment which was not called. It may have been in a puerile form, but at all events we tried to show that this definition is too narrow. The Government would not go as wide as we should have liked them to do and say that companies are associated if they enter into any transaction other than transactions between parties at arm's length. If the transaction is at arm's length, companies are not associated; but if it is not, they are.
If the Government are not prepared to accept a definition as wide as that, at all events they should meet us half-way. To stick to this definition is hopeless, and highlights the way to tax evasion. It will lead to enormous trouble, and to difficulties to which my hon. Friend has referred. Next year I shall be in the impossible position of wanting to say, "I told you so," but being too much of a gentleman to do so.
§ Mr. Barber
I can only repeat again that the definition of associated companies was considered at the time of drafting. Obviously, a relevant consideration in a Clause of this kind is how far one can go in defining associated companies. I repeat that we have considered this and—these are not light words—what I think important is that this was considered in the light of experience and what has happened in the past, and with a view to catching the sort of people we wanted to catch by this Clause. We are satisfied that by the definition of associated companies provided for in Clause 41 we are going as far as is reasonable in the circumstances.
The other point made was with reference to liquidation of the landowning company. By such a liquidation presumably the land would be sold off and the operators would be left with their building company. Of course, the connection with the land would have gone. Again I have made inquiries about this and I can assure hon. Members that we are satisfied that the profit on a subsequent manipulation of the building company, the only one remaining in 300 being, would be caught by the Clause as drafted. This was the point which was examined, and we are satisfied that the new Amendment will be satisfactory to deal with the position.
§ Mr. Mitchison
This particular point was collected by the Government from experience. It did not, apparently, arise out of discussions in Committee, but how long is this experience? Is it an experience which began at about the Committee stage and has now come to fruition, or is it—as I hope is the case—something riper and more ancient than that? If it is the latter, what exactly has happened? Did the Government investigate this question and then, at some period between the Committee stage and now, say, "Well there is something which experience should have taught us but which, unfortunately, we forgot to put into the Bill"? Is that the history?
Whatever it is, I say in all seriousness that it is a very unsatisfactory position. I was not at all surprised to hear my ingenious hon. Friend the Member for Oldham, West (Mr. Hale) say that he could think of sixteen ways of getting round this Clause. I was waiting to hear what they were, but he never told us. After discussion of this and previous Amendments, I am left in this position. The original provision was admittedly imperfect It had holes in it and the Government have since thought of ways of stopping up those holes, ways dependent in this case on experience. What was lacking was Government thinking about this particular point. I should have thought that on the law of probability they had not covered the lot and that the sixteen methods present in the mind of my hon. Friend really arise. All the odds are that they have not covered the lot.
My hon. Friend the Member for Glasgow, Craigton (Mr. Milian), with a hopefulness which on this point I cannot share, trusted that the Government would put the matter right. He was calling attention at that point to some of these deficiencies, but this is introduced on Recommittal at the very last stage of the Bill. How are the Government to put these matters right? Suppose that, for once in a way, the Government have made a mistake and it has been pointed out by my hon. Friend the Member for Glasgow, Craigton. It is conceivable that 301 it may happen again on Report, but, if it happens again on Report, what is the result? I believe it is years since a Government have tried to make Amendments to a Finance Bill in the Lords. I think that is now unprecedented, although I suppose it is technically possible.
§ Mr. Mitchison
It is very undesirable, I quite agree. That is the result of this kind of thing being discussed at this stage. It is really lamentable. Cannot the Government start doing their thinking for next year now in the hope, if not in the confidence, that they will still be in office when the next Finance Bill is presented? The history of this matter is a most discreditable business and the discussion we have had on this Amendment illustrates it absolutely and completely.
Here is an Amendment on Recommittal based on experience. It is brought up at the very last moment by the Government when it is too late to make this Amendment paralleled by Amendment after Amendment which ought to he made, but which will never see the light of day because the Government coadjutors will not think of them until too late.
§ 6.45 p.m.
§ Mr. Millan
I want to mention briefly again the point raised by my hon. Friend the Member for Gloucester (Mr. Diamond) about the question of winding up a company because, so far as I could see, the Economic Secretary failed to answer it.
The Economic Secretary said that the profit made would be caught through the building company, but my hon. Friend was talking the whole time about the land-owning company. He was talking about the winding-up of the landowning company. It is difficult to see why the provision in subsection (2) should not also apply to the land-owning company. That was a simple point my hon. Friend made, but nothing the Economic Secretary said dealt with it. I am sure that my hon. Friend was raising this matter only in a questioning manner. I do not think that he was being dogmatic about it. There may be a good reason why the Government have done this in this way. The Economic 302 Secretary has in no way explained it and we must press him to give an explanation.
§ Mr. Chapman
We are in an utterly astonishing situation. I do not recall a situation such as this on a Finance Bill in any previous year since I have been a member of the House of Commons. First, we warned the Government as we dealt with the earlier Amendments to the Clause that no sooner would it be passed into law than every possible means of evading it would be uncovered. Then, within ten minutes, we come to one immediate way in which the intention of the Clause can be evaded. We then pointed it out to the Economic Secretary, who understands what we are getting at, but his whole answer is that the matter has been considered and the Government propose to do nothing about it.
The Chancellor ought not to sit there all the time saying nothing. I hope that he will reply to this discussion. At every stage when we have raised matters of tax avoidance in Committee he has said," If ways of evasion are brought to my notice, I shall immediately see that they are stopped up." Now he has sat silent while one way of evading the provisions of the Clause, the simplest way imaginable, has been put to the Committee. He has not even authorised his hon. Friend to say that the Government will look at the matter again. He said that the Government would consider the drafting of the Clause on the lines of the way in which people have been acting up to the introduction of this Clause.
It may be that, because people have been acting so far with little limitation, they have not been as astute or manipulative as to do what we are suggesting they may do. If a restrictive Clause like this is introduced, their minds will go towards the manipulative procedure which we have been outlining. Just because it has not been happening so far, we cannot say that it will not happen the moment the Bill becomes law.
We must have some reply from the Chancellor on this point. We have put a clear case of possible avoidance. It is as clear as daylight and could be used by anyone wanting to make a cool million or two in the next few years. We have put the case with every possible restraint we could summon on an issue about which we feel very strongly. We 303 have spoken clearly and our points are accepted. Yet we have the intolerable situation, which is utterly astonishing, that the Chancellor will allow a clear means of tax avoidance to be trumpeted from the Chamber without saying how he proposes to stop it.
We have considered these matters very carefully and we believe that we have designed this Clause in a way which will catch the kind of cases we are out to catch. We have listened to what the hon. Member for Birmingham, Northfield (Mr. Chapman) and other hon. Members have said. We do not share their views. We believe that, substantially, this will catch the cases we are after. If in the light of experience we find that that is not so, we shall see what other steps are required. The measure we have brought forward is one which we think will be effective to catch the cases that we are out to catch.
Mr. H. Wilson
The Chancellor and his predecessors have been invariably over-optimistic about this sort of thing for the past five years, and invariably they have been proved wrong. It really is not good to say, "We think this is all right and we will go on as we are going. We shall watch it and then take action." We now know that the Chancellor himself has set himself against any retrospective action, despite the brave speech he made on the 1958 Budget. In any case, we understand that the right hon. Gentleman will not be in charge of these matters in the future. With respect to the Chancellor, he is leaving the door open, as I understand from what my hon. Friends have said, with no means at all of dealing with the situation between now and at any rate next Budget Day.
I make this final appeal to the Chancellor. We all recognise the difficulties of the time-table, and none better than I. We recognise the impossibility of dealing with this in another place, and I hope that neither this Chancellor nor any other will ever do anything to upset the traditional rights as between the two Houses. Despite our opposition to the recommittal this afternoon, if the Chancellor feels that he could by further consideration between now and tomorrow get this matter put right, and if tomorrow, by any of the workings of the procedure of the House— 304 and it is not for me to say how it should be done, because the Chancellor can get his advice—the Chancellor feels that it would be possible to recommit tomorrow, or that it could be done on Report stage tomorrow, I can tell him that we shall not oppose the Recommittal, but that we shall facilitate anything he may do to tighten up this important point.
I do not know whether it is technically or procedurally possible to do it, but I hope that the Chancellor will not leave it in his present mood of over-optimism. Despite what we said about this big Recommittal which we debated this afternoon, if he can find means of dealing with this matter by an appropriate Amendment, either on Recommittal tomorrow or on Report, he can count on our support. My hon. Friends and all of us on this side of the Committee have said that we mean business about it, and we have not had from the Chancellor a form of words that will be adequate.
§ Amendment agreed to.
Further Amendments made: In page 18, line 6, leave out
formed a substantial part of the value of the
or the aggregate value of the interest and any interest which the company so had immediately before that time in any other building (not being a building completed more than six years before that time) the erection of which was carried out or secured by the company, amounted to one-fifth or more of the net".
In line 12, after "interest", insert "or interests".
In line 14, after "building", insert "or buildings".—[The Solicitor-General.]
§ Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.
§ Mr. Mitchison
Clause 21 deals with companies which are putting up buildings on land, and to some extent, as was explained to us, by companies which may own the land on which these buildings are being put up. It follows a Clause dealing with various forms of trade, specifying particularly the trade of dealing in land or buildings.
It seems to me significant in present circumstances that we have to take special measures in a Finance Bill to prevent tax avoidance in the case of dealings in land and dealings in buildings, because the profits that are being made 305 in that direction in present circumstances are not only so much greater than they have been in the past, but so much greater in relation to the work and resources required to earn—if that is the right word—those profits that, naturally, people are striving to the utmost of their ability to keep the profits out of land and buildings as capital and not to have to pay Income Tax on them. These are the types of trade which they select, and which have to be provided for in this Finance Bill.
I have not the least doubt that the Treasury, in framing these Clauses, and particularly that which we are now discussing, has made its own investigations into what is happening, but though the form of the tax avoidance has been explained to us, the extent of it has not been explained. It relates to the extent to which these abnormal profits are being made out of dealings in land and buildings at present, and I trust that the Solicitor-General will pass on to the Committee a little of the information that must have moved the Treasury to put these Clauses in the Bill.
What is the extent of the profits now being made on land and buildings? How quickly are they being made? Are they much greater in London and around London than they are elsewhere? Is the statement true that they have trebled in a short period recently? Is it, at any rate, true to say that they have increased, to everyone's surprise except those who are conducting the dealings, and that they have increased quite lately and quite largely? We are entitled to some information on these matters. We cannot, in discussing this Clause, consider the causes of what has been happening, but the extent of what is going on seems to me a very fair matter for comment.
I repeat that my reason for saying this is that this Clause deals specifically with land and buildings and the profits which are being made out of them, and the preceding Clause, though it does not deal only or specifically with these cases, at any rate mentions similar transactions. I want to give the Government as much help as I can in providing this information. There have been some very strange cases. We have heard of astronomical prices being obtained, but those do not necessarily give the profits 306 which have been made. A case was reported in the paper this morning of £250,000 being offered for half-an-acre in Luton.
§ 7.0 p.m.
§ Mr. Mitchison
Perhaps we could be told the true facts.
It would be interesting to know what has been happening in the London area where the great pressure to get houses at any reasonable figure has itself resulted in a considerable rise in the price of any land where there is planning permission to build houses. This applies not only in London but in the areas around London, and it raises all sorts of questions of the greatest public importance which obviously we cannot discuss on this Question. I am merely asking for information, and I hope that the Government have a little more information than I have been able to collect from such sources as The Times this morning and the Financial Times of last Friday, in which quite a number of figures were given. In preparing such a Clause as this, the Treasury must have had much more information.
May I summarise my questions? What is the extent of tax avoidance of the kind contemplated by this Clause, and, if it is necessary to do the two together —and it may well be—of tax avoidance in connection with land and buildings of the character contemplated by this and the previous Clause? That is the first question.
The second question is, has the Treasury any information on the profits which have attracted this tax avoidance? Have they any information as to their size or as to the extent to which they have developed recently, if I may use those words? Is it true—I merely give this as an instance—that they have trebled in quite a short recent period? Is that the information in the Government's possession?
§ Mr. Diamond
The short appearance of the Leader of the House was most welcome. I do not know the precise reason that he joined us; I hoped that it was to listen to the points which I am about to make on the difficulty which faces us as a result of the procedure which we are following. It may be that 307 he came to see why one of the Government's supporters was so incensed with what the Government are doing that he made his appearance, no doubt with his seconds, prepared to fight it out to the bitter end. But perhaps the Home Secretary was not aware of that.
We are invited to deal with the Question whether the Clause, as amended, should stand part of the Bill, and we are about to agree that in its present form it should stand part of the Bill. Very soon we are to disagree with that and to say that it should not stand part in its present form but should be altered, because there are subsequent Amendments to the Clause. There is to be no interval of time between this stage and the later stage in which we can collect our thoughts and see where we are before we start going somewhere else, and it is always useful to know from where you start before you proceed to progress.
The difficulties with which we are faced arise partly from the volume of Amendments on Recommittal and partly from the fact that we have no interval between Recommittal and Report. As the Economic Secretary pointed out, one of the Amendments made to Clause 21—that to define "substantial" by calling it one-fifth—was justified on the basis that it is the same as in Clause 20. But it is not the same as in Clause 20. It is the same as Clause 20 will be by the time we have finished all stages of the Bill and dealt with the Amendments to Clause 20, assuming that we deal with them in a certain way and that certain Government Amendments are called.
The reason that we are accepting the Clause is that it does not tie up at this stage with another Clause and with a provision which is on all fours—and if that sounds nonsense, that is exactly the point I am trying to make; that it is nonsensical that we should be compelled to deal with the matter in this way. As you will have observed, Sir Norman, the Clause is out of order on its drafting.
§ The Temporary Chairman (Sir Norman Hulbert)
The hon. Member having made his point on the procedural matter, I hope that he will now come back to the Question.
§ Mr. Diamond
I am saying that the Clause, as amended, should stand part 308 of the Bill because in its present form it is quite unreadable, quite unintelligible and quite nonsensical, and this shows what a mess we are in with the present method by which the Government carry on their business. It will continue to be nonsensical until we reach the later stage of the proceedings, when we can remove the nonsense.
If hon. Members look at subsection (2) they will read it in the following way:Where before the sale of shares mentioned in the foregoing subsection the company has—(b) has created … (c) has sold.…In other words, it reads:Where … the company has has created … and has has sold".This is by a "has-has" Government. I wish I could say by a has-been Government.
We are in this difficulty and we can make no protest other than to draw attention to the situation. I wish the Leader of the House had been here to sympathise with us in our difficulty and to realise what a lot of nonsense is being made of this attempt by Parliament to control the expenditure of the country.
§ The Solicitor-General
The hon. and learned Member for Kettering (Mr. Mitchison) asked me a number of questions to which, I confess at the outset, I am unable to provide an answer. He asked the extent of the tax avoidance against which these Clauses are aimed. The right hon. Member for Huyton (Mr. H. Wilson) asked me that earlier, and I had to explain that of necessity we cannot provide that information because those profits are outside the tax net. But we believe that the losses have been substantial, and for that reason my right hon. Friend asked the Committee to pass Clause 20 and the consequential Clauses, one of which we are discussing.
The hon. and learned Member asked me about the profits which have attracted tax in transactions relating to buildings and land. I am afraid that it is not possible to give him any information about recent movements of profits in that respect, because any information that we have relates only to a previous tax year, and even with that year it is not possible to break down the information between one part of the country and another. Some information on a very generalised basis is given in the Report of the Commissioners of Inland Revenue, 309 but if the hon. and learned Member wants more information perhaps he will put down a Question, and my right hon. Friend will answer it as best he can on such information as we have available.
I do not think that I need say any more in relation to the points made by the hon. Member for Gloucester (Mr. Diamond). We are in a difficulty in proceeding in two stages. I am afraid that that is inherent in our procedure. Some of these Amendments involve, some incidentally and some substantially, the levying of a charge, and we therefore have to proceed in two stages. I think that the hon. Gentleman was quite right in drawing attention to what looks, at any rate, like a gramatical solecism in subsection (2). I saw from the Notice Paper that his eye had alighted on it, but we can consider that when the Amendment is reached.
§ Mr. Ede
The hon. Member for Portsmouth, Langstone (Mr. Stevens) was congratulated upon having found an alternative, acceptable to the Government, to the word "substantial," but, in fact, the Solicitor-General has brought the word back into our discussion because he tells us that the loss to the Revenue, which this Clause is meant to remedy, is substantial. What does that mean in relation to this sort of transaction? Does it mean that the loss runs into millions of £s, or tens of millions of £s—or is it something under £1 million? The answer, of course, depends on the number of transactions and the amount of money involved in each, but, the Committee having got rid of the word "substantial" from the Clause, I do not think that the hon. and learned Gentleman should try to get out of answering my hon. and learned Friend the Member for Kettering (Mr. Mitchison) by bringing in such a vague word.
§ The Solicitor-General
I am afraid that, despite the blandishments of the right hon. Member for South Shields (Mr. Ede), I cannot go further than to say that it is substantial. The Inland Revenue has had one or two test cases and is investigating others, but very large sums of money are involved, and the amount is increasing.
§ Mr. Chapman
Unlike my hon. Friends, I feel that the best thing we can do with this Clause is to oppose it. We have now reached a stage at 310 which, owing to our discussion on the previous Amendment, we have in the Clause as it now stands a completely fool-proof way of evading its whole intention. The whole thing is hardly worth the paper on which it is printed.
If you are a big-time operator in this way, Sir Norman, and wish to carry on with the kind of evasion that was being practised before the Clause was put in the Bill, we have now written in for you, if you are that sort of person, and have sign-posted by our discussions exactly what you must do to carry on as before. If you are one of these operators, and want to be able to get out of certain sales—
§ The Temporary Chairman
Order. It would probably be better if the hon. Gentleman were a little more impersonal.
§ Mr. Chapman
I was putting it in that form, Sir Norman, in order to highlight my point, but if you do not wish, quite rightly, to he associated with these people, I will put it more impersonally and refer to anybody. Let me, however, take you through the steps that other people will take. An operator will say, "I want to avoid the Clause. I want, in effect, to sell shares of companies in such a way that what should really be profits from the sale of buildings become capital transactions." That is what the Clause tries to catch.
He will say, "I don't want to be caught. I don't want to pay any taxes in this way, so I shall not do any of the simple straightforward things that the Clause seeks to catch. I am way beyond that. Those methods are too out-dated." He will go by the signposts that we have put in this afternoon, which means that when he starts the whole operation of making this money in this way—making millions, as it may be, by this form of speculation—he will not do it by being so simple as just to form one company.
He will say, "I will get together with other business men who in no way can be called an associated company with me —not legally, anyhow, or in a way that can be caught by the Bill's definition. We will have it all on a good old boys' interlocking business relationship in which we shall all share the swag in a few years' time. When we start the operation, we shall form two companies, one to deal in the land and one to deal in 311 the buildings. Then, because we are not associated, we shall carefully arrange that most of the profit is made on the land and not on the buildings and, in a few years' time, we shall get a nice tax-free capital gain."
As I read the Clause as it is now drafted that is the simple signposted way to avoid its implications. Every big-time operator will now say, "Thank you very much, Mr. Chancellor of the Exchequer. I never thought that you meant what you said about catching tax avoiders, and I see that you leave a loophole every year. This year it is a nice big one."
I really am astonished that this should be put through the House of Commons without even a denial from the Chancellor that this is true, because very quickly now it will go forward as the law of the land, and be something that we are supposed to honour. I really am astonished. In all those circumstances, it surprises me that my hon. Friends should feel like supporting the Clause as now drafted. I feel more like going into the Division Lobby and voting it down as the thoroughly simple farce it now is, with this great loophole in it.
§ 7.15 p.m.
§ Mr. Millan
I fully support what my hon. Friends have said about the Clause, but I want only to speak about the other aspect that was raised originally by my hon. Friend the Member for Gloucester (Mr. Diamond), and was not satisfactorily dealt with—the point about winding up, with particular reference to the circumstances in which there are two associated companies, one the landowning company and one the building company.
Quite apart from whether the winding-up provision ought to apply to the landowning company as well as to the building company, the Government ought to consider how subsection (3) works in the winding-up procedure, because then the untaxed profits that are to be taken into account are those that would have been produced by a sale of the interest in the open market immediately before the time at which the company is wound up.
If two associated companies are both wound up, and if the Clause applies to both, that is perfectly all right, but if only one is wound up, assessing the 312 profit from the point of view of the value of the interest disposed of in the open market might very well not give the correct result. Here we are assuming that there is a certain amount of manipulation, and it may be possible for the manipulation to be so arranged that the provisions of subsection (3) would not bring into charge the amount that the Government correctly think should be brought into charge.
I do not want to go into that at any length, because it sounds rather a technical point, but we have had no satisfaction on that winding-up procedure. I hope that the Government will look into the question raised by my hon. Friend, and also into the question of the open-market value in a situation in which both companies, the land-owning company and the building company, are not wound up simultaneously. I feel that a possible loophole exists here.
§ Question put and agreed to.
§ Clause, as amended, ordered to stand part of the Bill.