Clause 17.—(PLANT AND MACHINERY AND OTHER ASSETS LEASED TO PERSONS CARRYING ON TRADE, ETC.: SPECIAL CASES.) (Hansard, 30 June 1964)

§ The Solicitor-General
I beg to move, Amendment No. 19, in page 16, line 28, to leave out from "trade" to the end of line 30.
This Clause is another of the tax avoidance Clauses, and it deals with the trader who owns an asset and loans and transfers it to another and then leases it back at a bunched-up rent. It also deals with the position of an associate.
My hon. Friend the Member for Walsall, South(Sir H. d'Avigdor Goldsmid) feared that, as drafted, the Clause might catch the genuine case of the manufacturer leasing to another company in the same group who leases to another who actually uses the asset for trade—a genuine transaction. It is true that the Clause would bite only if the commercial rent were exceeded, but it is appreciated that there could arise considerations owing to obsolescence or a shorter working life, and, therefore, the Clause as drafted might catch traders in genuine transactions which involved no tax avoidance. It could be argued that the Clause does not so bite, but there is a doubt.
I told my hon. Friend that I had formed the view that it would not catch the genuine transaction, but, on reflection, I fear that I was wrong. There is no intention to catch the genuine case, and it is important that there should be no doubt. The Amendment therefore excludes from Clause 17 cases in which the asset was never owned by the trader who makes the rental payment but by an associate, and it cuts out associated persons. They will fall within Clause 16, which deals with the lump sum received. In the genuine case there will not be a lump sum received. On reflection, and having heard what was said when the matter was debated in Committee, we feel that the House should accept the Amendment. It will ensure that the genuine transaction will not be caught.

§ Mr. Mitchison
I appreciate the Solicitor-General's anxiety not to involve a person who ought not to be involved, but these words were presumably put 1307 in to cover the case in which an association was not as innocent as all that, and by taking them out it seems that the provision which was intended for the non-innocent association disappears, too. Is there any new provision to cover that case?

Sir H. d'Avigdor Goldsmid
I cannot answer that question, but I express my thanks to my right hon and learned Friend the Solicitor-General for the courtesy and attention which he has given to this point. I hope that the hon. Member for Cardiff, South-East (Mr. Callaghan) will excuse me from trying to give a further explanation.

§ The Solicitor-General
Cutting out the associated persons means that cases will fall within Clause 16. Where there was a genuine case there would not be a lump sum received. If it were a tax avoidance scheme it would fall within Clause 16, because there would be a lump sum received; because that is the whole purpose of tax avoidance. On reflection, we thought it fairer both to the taxpayer and to the Revenue to make the Amendment.