HC Deb 18 June 1964 vol 696 cc1676-82

Notwithstanding subsection (1) of section 22 of the Finance Act 1961, annuities payable under the Federal German Compensation Law for Public Service (B.W.G. öD) shall not be regarded as income for any income tax purposes, provided that any such annuity has been awarded and is paid on condition that the recipient thereof has renounced such further or other claim or claims as he might otherwise have possessed for tax-free compensation under BEG (Federal Compensation Law) for racial persecution and such exemption shall operate retrospectively from the date of the granting of such annuities.—[Mr. Gurden.]

Brought up, and read the First time.

Mr. Gurden

I beg to move, That the Clause be read a Second time.

I make no apology for keeping the Committee at this late hour, because it is important to get this matter cleared up. I am not clear whether my right hon. Friend is in sufficient sympathy with the new Clause to shorten the proceedings by telling me that he will give me what I have requested.

Hon. Members may think that it is a very odd situation that those who have suffered under Nazi persecution should be taxed on their compensation, but that is the case still for a few people. Using the words of my hon. Friend the Financial Secretary, I can only say that it is an unintentional anomaly.

Compensation was given—in many cases very much less than had been claimed—to those who had suffered under Nazi persecution, and later the House made changes in a Finance Bill to free those who received this compensation from tax on it. I may be wrong, but I believe that it was an international agreement that those who had suffered loss should not be taxed on the compensation. It is, after all, not an income which ought to be chargeable to tax. It is compensation for loss of property and goods which these people owned in countries which were taken over by the Nazis.

This seemed to be all set to right, but it has come to the notice of some of us that the German Government did not compensate all these people who were still alive—fortunately some of them are still alive—under this Federal compensation law.

One of my constituents, a Mr. Kollman, had his compensation claim changed from the ordinary Federal compensation law to another Federal law, but in respect of compensation for public service. That, in effect, is compensation for loss of office. Mr. Kollman—and I want to make it clear that he was not a German but a Czech—accepted the change in his compensation payment from the ordinary law to the one I mentioned because he was told, on being threatened by the German Government, that his claim would not be admitted unless he changed it to the other law.

No justification was given for the change. Several cases like this have come to my notice. Certainly in Mr. Kollman's case no reason or excuse was given by the German authorities. It should be remembered that under the ordinary Federal compensation law Mr. Kollman would have paid no tax. The Germans were recently asked why the change from one law to another was made, but they reply saying that our difficulties are domestic. One cannot blame Mr. Kollman for accepting the change, for at the time this House had not put to right the question of Income Tax payable on this compensation. It was at a later date that the Government attempted to do justice to these people.

When it was found that the Finance Act, 1961, and other legislation did not cover the situation, attempts were made to put the matter right. Those attempts were not successful in Britain, and Mr. Kollman wrote to the German Government asking them to put his claim back under the ordinary Federal compensation law so that he would not be liable to Income Tax, but they refused. The Germans claimed that this was a purely domestic matter for Mr. Kollman in this country, and I suppose that they were right.

In raising this matter I am not asking for any breach of the existing principles which operate in these cases. The principles, as I understand them, have been established so that compensation paid to these people, who lost everything in Czechoslovakia and elsewhere, should not be charged for Income Tax. As I said, this is not an income, but compensation for loss. Not much money is going to Mr. Kollman. The Germans whittled down his claim to the lowest possible figure.

It might interest the Committee to know some details in Mr. Kollman's case. He lost all but one of his relations. Including cousins and other relatives, 60 people went into the gas chamber. Every bit of the property owned by those 60 people was confiscated by the Germans. In terms of value, that property was worth about £30,000. Naturally Mr. Kollman is getting a very small part of that sum in compensation—a small, quarterly payment—but even that is subject to Income Tax. Fortunately, the man is able to earn a living as a teacher. He married a Birmingham girl, and they live in my constituency. He is subject to tax on his earnings as a teacher, of course, but this compensation should clearly not be taxed.

I will not go further into the argument, because it has all been discussed during the passage of an earlier Finance Bill. As I say, it was agreed, not only by this country but by others, that this compensation should not be taxed, and I therefore hope that my right hon. Friend will be able to accept this new Clause.

1.0 a.m.

Mr. Boyd-Carpenter

This is obviously a subject that commands the sympathy of the Committee and, if I may say so, I particularly admire and respect the characteristic persistence with which my hon. Friend the Member for Birmingham, Selly Oak (Mr. Gurden) has pursued two successive Financial Secretaries on the particular case to which he referred, and which, as he has indicated, lies behind this new Clause. I am afraid, however, that there are very real difficulties in meeting him on it, and it might be helpful to the Committee if I were briefly to describe what has been done on the subject.

To begin with, the payments made by way of compensation by the German Government were subject to tax in this country in the ordinary way as income, but by Section 22 of the Finance Act, 1961, a provision was inserted in our law on the following lines. It was provided that where the compensation was not subject to tax in Germany, that type of compensation should not be taxable here As my hon. Friend has indicated, a number of other countries concerned took similar action.

That, of course, still left taxable here those forms of compensation which would have been taxable if the person concerned had been in Germany. There were two good reasons for this. The kind of compensation which German law exempted from tax—and which we therefore followed in the Finance Act, 1961—was true compensation payments in the sense of payments for personal injuries, loss of and damage to trade or profession, and so on. On the other hand. German law did not exempt from tax such matters as the restitution to an individual of the social security benefits or public service pensions which, if they had never been withdrawn by the Nazis but had continued to be payable, would have been taxable. The German Government have restored them, but restored them on that basis. Therefore, our legislation in 1961, as did the legislation of other countries, left them similarly exposed to tax.

The Committee will probably think that reasonable, and it is also right to assume that the German benefits—which, under German law, are taxable—were calculated for compensation purposes on the basis that they would be subject to tax. Therefore, the recipient here remains subject to our tax. There is no question of double taxation; in so far as German tax is paid, that will be credited to the taxpayer under the double taxation agreement with the Federal German Republic.

I agree that this case, from the point of view both of my hon. Friend and of his constituent, is rather provoking. The original claim was in respect of a form of compensation exempt from tax under German law and, therefore, since 1961, under ours; but the discussions and negotiations of my hon. Friend's constituent had with the German Government resulted in the matter being settled on the basis of the restitution of his public service pension which, had he been in Germany, and had there been no Nazi persecution, would have been taxable. Had he been in Germany now and had it been restored to him it would have been taxable and, therefore, under our 1961 legislation it is also taxable here.

I can understand his disappointment with the result of his discussions with the German Government and that the compensation awarded to him was in a taxable form, but I think my hon. Friend will appreciate that it would do violence to the very proper course on which this Committee decided in 1961 if we were to go further than the German Government and other countries and proceed to exempt from taxation here payments which are taxable in Germany and which the Germans no doubt calculated on the basis that they would be taxable.

Therefore, much as I sympathise with my hon. Friend's constituent and much as I admire the pertinacity of my hon. Friend in pressing this case, I really do not think that I can advise the Committee to meet him by an alteration of the law which, I think, from every significant point of view would do violence to the not unsatisfactory solution at which we arrived on this problem.

Mr. Gurden

I am afraid that I do not go all the way with my right hon. Friend in his argument. Quite clearly, my new Clause would not create a new principle because it would apply only to those cases where a claim had been recognised under the Federal compensation law. It would not apply to everyone who accepted compensation for public and welfare services. Clearly, my constituent had no claim for public service and no claim for welfare service. He had very little employment, and what he had was in Czechoslovakia and not in Germany. I cannot agree that my right hon. Friend's case is entirely sound. I appreciate the point that he makes, but for the life of me I can see no justification for withdrawing the Motion and Clause. I must leave it there.

Mr. Boyd-Carpenter

I see my hon. Friend's point, but, with respect, I think that he is on a false point. What he is saying now, and it is consistent with the Clause, is that it would be all right that compensation of this sort should be taxable in Germany but that it should be exempted from tax here if it has been accepted in negotiation in lieu of a nontaxable form of compensation. I think that one has only to analyse the proposition to see that that would hardly be fair. It would mean that those who had originally put in claims for a taxable form of compensation would be taxable, but that those who put in claims in a form not acceptable to the German Government, and therefore the claims had been settled on the basis of an award of another form of compensation, would not be taxable.

I think that on reflection my hon. Friend will see that it would be difficult to satisfy people in the first category that they had been fairly treated if people in the second category were given exemption from tax as this Clause seeks to do.

Mr. Anthony Fell (Yarmouth)

My hon. Friend's point surely arises from the fact that this man, his constituent, was forced into a category which he should not have been in. I accept, of course, the fact that my right hon. Friend has no control over that, and that neither have the Government perhaps, but surely it is not beyond the wit of the Government to make some sort of exception in an exceptional case of this sort.

Mr. E. G. Willis (Edinburgh, East)

Surely this is a case in which we ought to use what has been talked about previously, the extra-statutory authority, in order to do justice.

Mr. Gurden

The change in the compensation was made before the House dealt with the matter in 1961. It was imposed by a German court and there was no opportunity for my constituent to appear before that court. This was all done without his knowledge and in his absence and he had either to sign acceptance or there was nothing. It did not appear to matter at that time. It was the action of the House of Commons that made it matter afterwards.

Mr. Boyd-Carpenter

The important point which my hon. Friends are on relates to the action of the German Government or, as my hon. Friend has just added, the German court. If it is a fact that this man was awarded the wrong form of compensation by the German court or the German Government—that to which under German law he would not be entitled—then the remedy seems to be to approach the German Government and have the matter righted. My information does not square with that of my hon. Friend the Member for Selly Oak but he may well be right and I may well be wrong. If he likes to discuss the matter with me I am prepared to consider whether in the circumstances an approach should be made to the German Government. I think that that, rather than create an obvious anomaly in our tax law, would be the right way to handle it.

Mr. Gurden

Then I would be quite willing to withdraw. An approach has been made to the German Government, but in the circumstances I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.