New Clause 77 (Hansard, 3 July 1968)

§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
I beg to move, That the Clause be read a Second time.
I should perhaps begin by expressing my sincere gratitude to Mr. Speaker for selecting this small new Clause, and also to hon. Gentlemen on both sides of the 1545 House for their patience in devoting themselves to a matter which involves only a small number of people. It is an honourable tradition that these matters are given the consideration of the House, even though the number of people affected is small.
The short object of this Clause is to bring the fiscal treatment of refugees from Nazi oppression who come from Austria into line: with that afforded to those who have come from Germany. The fiscal treatment of the former German refugees has been before this House on a number of occasions. My hon. and learned Friend the Member for Northwich (Sir J. Foster) moved a new Clause, seeking relief for them in 1957 which was negatived. In 1960 my hon. Friend the Member for Hendon, South (Sir H. Lucas-Tooth) moved a new Clause, very ingeniously phrased with a similar purpose, which was withdrawn.
It is clear that what was said on that occasion sunk in, because my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) introduced into his Finance Bill of 1961 a Clause which became Section 22 of the Act, and which performed the tasks for which permission of the House had been previously sought. Section 22(1) of the Finance Act, 1961, reads: Annuities payable under the law of the Federal German Republic relating to the compensation of victims of National-Socialist persecution, being annuities which under any such law relating to the taxation of such compensation are specifically exempted from tax of a character similar to that of income tax, shall not be regarded as income for any income tax purposes. Hon. Members may ask why this is not applicable to Austria. The reason is that the Austrian Government have not created annuities in such similar terms. It is not for me to inquire into the reasons governing the Austrian Government in this matter, but instead of agreeing to make these annual payments to the victims of Nazism the have preferred to make generous provision for them under their own State social insurance scheme.
They have deemed as fully paid the contributions which the victim would have paid, assuming normal conditions, had it not been for the war. The period for which the Austrian Government has made these contributions runs from 1933 1546 to the fixed date of 1st April, 1959. Thus, a man who emigrated in, say, 1939, at the age of 30, and is now in receipt of a pension, finds himself receiving a pension based on 40 annual contributions, for some of which he may have paid before leaving Austria, some of which he may have paid subsequent to 1959, but 20 of which will have been credited to his account by the Austrian Government, without any contribution on his part.
This Clause seeks to ensure that the proportion of his pension which is covered by the Austrian Government's uncovenanted contribution is recognised by the Government as a form of indemnification for injustice inflicted on the beneficiary by the Nazis. On that basis, it is suggested that it should likewise be freed from British taxation. I would remind hon. Members that before 1961 it was agreed by the Revenue that indemnification payments made by the German Government to Nazi victims should escape British taxation. This refers to payments made by the German Government in respect of physical injury or damage to the health of the person concerned.
The view which the Clause seeks to put forward is that the unconvenanted proportion of this pension is a form of indemnification payment. It is recognised as such by the Austrian Government, and I hope that our Government will see it in this light, and agree that it should escape British Income Tax. I can tell the Minister of State that if he accepts this Clause, the number of former Austrian citizens living here who can expect to benefit is in the neighbourhood of 4,000. I also understand that the Austrian Government are prepared to furnish to the Revenue the relevant information about those individuals, so that correct assessments can be prepared.
During the 1960 debate my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle), replying on behalf of the Government, said: This is matter which causes the Committee some disquiet. It is always a difficult position when, on the one hand, you may be creating an anomaly and a sense of injustice between one individual and another according to the tax code of our country, but, on the other, I recognise that Nazi persecution is something very different fortunately, from most things which the modern world has ever known."— [OFFICIAL REPORT, 22nd June, 1960; Vol. 625, c. 636.] 1547 It was on the strength of that admission by my right hon. Friend, then replying on behalf of the Government, that my right hon. and learned Friend the Member for Wirral brought in the provision in the 1961 Finance Act.

§ Mr. Taverne
The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has raised a very difficult matter which I am sure has the sympathy of the whole House. He has drawn a parallel with exemption tax on payments made by the Federal German Government which, on the face of it, is a parallel calling for action, although I am not sure whether on closer examination it is a real parallel.
We start with a general principle of tax law which is of some importance, namely, that receipts of an income nature are taxable, whatever their source. If one starts looking at the general question, it becomes extremely difficult to differentiate between different sources of income which often may be payments arising from the most distressing circumstances and to say that in certain cases the origin of the payments can be a ground for exemption and in other cases not.
On the face of it, there was an exemption in 1961 for certain victims of Nazi persecution which would seem to give rise, in principle, reason and logic, apart from grounds of sympathy, to the argument that exactly the same test should be applied to other victims of Nazi persecution. But the reason why this special provision was made in 1961 was not only out of sympathy for the victims of Nazi persecution, victims of perhaps the greatest crime this century has known, but also because of the special circumstances in which the annuity in which they were paid became payable.
The background to the matter is this. The Federal German Government made specific provision for exempting those to whom they paid compensation from their tax law. They said that there was a limited amount which they felt they could afford to pay, and, to increase the amount which they felt able to pay to the victims of Nazi persecution, they exempted the payments from their general tax laws and said that they should not bear tax. They then requested all foreign Governments in the countries in which other vic- 1548 tims of Nazi persecution who received these payments resided to make similar exemptions in their tax law in respect of them.
The reason it was felt possible to depart from the general rule that one should not look at the source from which taxable payments come in deciding whether they should be exempt from tax was that in this case the amount was calculated on the basis that the payments should be exempt from tax and it was, therefore, agreed that they should also be exempted from tax in the United Kingdom. No such special circumstances existed for pensions or social security payments made by the Federal German Government payable to other people who happened to be victims of Nazi persecution.
In this case, the position is rather different. As the hon. Member for Walsall, South said, the Austrian Government have said that persons whose pensions would otherwise be greater but for the fact that they had not paid contributions at the time of Nazi persecution should be paid their pensions in full. But, as I understand the position, these pension payments in Austria are subject to the general Austrian tax law and there is no provision that they should be exempt from Austrian tax law. In that sense, they are in a different position from the special category of payments covered by Section 22 of the 1961 Act.
I understood that the number of cases involved was very small. I now gather from the hon. Member for Walsall, South that about 4,000 people are affected. In the past, the Revenue came across Austrians who had been compensated under Section 22. Although they were not former German subjects, the Revenue found that the cases were very few and the payments were very small, and any tax which might have been due was given up on the grounds that the case was not worth pursuing.
I shall look at that question again, but, on the general principle, there is a distinction between the 1961 case and this case. This is not an annuity paid in the same way which is exempt from tax. This is an ordinary pension made up to those who could not pay their full contributions. In that special case, there would not seem to be special grounds for changing the general principle when so often one gets circumstances in which, 1549 under the law, the pension becomes payable but, nevertheless, the source for payment of an Income Tax nature cannot be looked at by the Revenue.

Sir H. d'Avigdor Goldsmid
Since I took part in the debates which I mentioned earlier, I am not surprised by the Minister of State's reply. We have heard before the arguments which he used. However, I am happy to hear that he is prepared to keep his eye on this matter. I cheer myself by looking at what my right hon. Friend the Member for Hands-worth (Sir E. Boyle), said when replying to a similar debate in 1960: I can certainly give the hon. Gentleman the assurance that in all our future studies of this problem we will gain as much help as we can by considering the position of other countries …".—[OFFICIAL REPORT, 22nd June, 1960; Vol. 625, c. 637.] My right hon. Friend did not give a pledge, but said that the problem would be studied. Because I regard the Minister of State's reply as not wholly negative, I beg to ask leave to withdraw the Motion.