Clause 47.—(POWER TO INSPECT BOOKS OF AGENTS CONCERNED WITH FOREIGN DIVIDENDS ETC.) (Hansard, 30 June 1966)

§ Mr. Higgins

Research facilities in the House are somewhat limited, but even the deepest research has failed to produce much of great interest or controversy with regard to Clause 47. This refers, of course, to foreign dividend agents. Having consulted a number of people on the subject, there is only one main point about which I am concerned.

A number of earlier Clauses considerably widened the discretion of the Commissioners of Inland Revenue and there is also a slight tendency in the final words of the Clause to give them rather a good deal of scope. It says that the Commissioners may issue certificates to certain dividend-collecting agents—I am sure that this is a good and workable arrangement—but adds that these may be revoked at any time by the Commissioners and may contain such terms and conditions as they think proper.

In what circumstances does the hon. and learned Gentleman envisage such certificates might be revoked? If he could give us some idea of the terms and conditions which the Commissioners may have in mind, we should be grateful.

§ Mr. MacDermot

I am grateful to the hon. Member for Worthing (Mr. Higgins) for raising this matter, because, although it is somewhat technical, this is an important Clause and it is right that I should explain it more fully to the Committee. It may be of interest to some people outside as well.

The purpose of the Clause is to give the Inland Revenue the power to inspect the books and other documents of a certain class of agents who do business in connection with the payment of dividends and interest to overseas Governments and companies, or who are engaged on behalf of customers in the collection of foreign dividends or interest. These people are required to deduct United Kingdom tax from these payments and pay the tax to the Revenue. The people who do this are relatively few and most are of the highest repute and have 2224 been doing this extremely efficiently for many years.

Unfortunately, a few years ago, there was a case involving one of the small concerns, which showed that, over about five years, the Revenue had been defrauded by the tax being deducted and not paid over. A substantial sum of revenue was lost and the two partners concerned were prosecuted and sentenced to seven years' imprisonment. This naturally gave rise to discussions about how to prevent such a thing happening again. It was because the office of the inspector of foreign dividends, a branch of the Inland Revenue, had no kind of effective control that this kind of fraud could be perpetrated.

When the office came to discuss this matter with the banking authorities—it is mostly banks which do this work—and also with the accepting houses committee and the Stock Exchange, it was pointed out that there were objections to unlimited access by the Revenue to these accounts, because it would constitute an apparent breach of the confidentiality of information about customers' affairs, which is, of course, an extremely important feature.

They were seriously apprehensive that overseas residents might withdraw their business. It is as a result of this that this exemption procedure was put forward by a working group containing representatives of the Revenue and other interested bodies. The proposal is, in effect, that the well-established, well-known and reputable firms will be granted an exemption and that new applicants, after a probationary period, will be granted an exemption as well. In this way, the foreign investor who seeks confidentiality can be given some assurance of it in that his agent is exempted from the audit.

I was asked in what circumstances the Revenue would envisage withdrawing the exemption. This would happen only if an agent's returns subsequently appeared to be unsatisfactory or gave rise to any suspicion of dishonest dealings. It would be only in those circumstances that the Revenue would withdraw the exemption so as to give it the powers to inquire into and investigate such information as it had which gave rise to the suspicions.

In the ordinary way, these are extremely well-established and well-known bodies, and we envisage that it would be very 2225 rare that an exemption, once granted, would ever have to be withdrawn. We envisage that most of these people will be exempted and that it would be only those people about whose bona fides there was some doubt or new applicants to the field who would be subject to this kind of audit.