DISCLOSURES OF INFORMATION TO TAX AUTHORITIES IN OTHER MEMBER STATES

HC Deb 13 July 1978 vol 953 cc1843-87

Mr. David Stoddart (Swindon)

I beg to move amendment no. 29, in page 5, line 27, leave out Clause 63.

Mr. Deputy Speaker

With this we may take Government amendment no. 98 and the following amendments:

No. 30, in page 56, line 33, at end insert: 'but no disclosure shall be made under this section unless the taxpayer concerned has been informed that such disclosure has been requested and has given his consent in writing to the disclosure'. No. 8, in page 56, line 33, at end insert: 'The Commissioners of Inland Revenue or an authorised officer of those Commissioners shall not disclose information by virtue of the said Directive without requiring the competent authorities of the receiving State to afford the information the same degree of confidentiality which it enjoys in the United Kingdom.'. No. 9, in page 56, line 33, at end insert: 'Nothing in this section shall permit the Commissioners of Inland Revenue or an authorised officer of those Commissioners to authorise the use of information disclosed by virtue of the said Directive other than for the purposes of taxation or to facilitate legal proceedings for failure to observe the tax laws of the receiving state.'.

Mr. Stoddart

Clause 63 engendered a good deal of debate in Committee upstairs, and rightly so, because it seeks not only to make available to foreign tax authorities the private affairs of United Kingdom citizens but to legislate by reference to another authority—namely, a directive of the EEC. Therefore, the clause seeks to legislate on the basis of a non-parliamentary and, indeed, non-British document. I—and, I hope, the House—will not accept with equanimity the subordinate role to which we appear to have been relegated by the introduction of the clause.

There is no doubt that the scope of EEC directive no. 77/799 is very wide. It goes beyond the double taxation agreements, since it provides for continuous collaboration between all the members of the Community and the Commission, which apparently intends to keep a kind of surveillance over the way that this mutual assistance works.

Hon. Members will have obtained a copy of the Official Journal of the European Communities which contains EEC directive 77/799. Therefore, it will not be necessary for me to quote the document at length. However, I should like to draw particular attention to one or two points which need some emphasis.

First, I direct attention to the final paragraph of the preamble. It states: Whereas collaboration between the Member States and the Commission is necessary for the permanent study of co-operation procedures and the pooling of experience in the fields considered, and in particular in the field of artificial transfer of profits within groups of enterprises, with the aim of improving those procedures and of preparing appropriate Community rules". It will be noted that the last words of that paragraph refer to "preparing appropriate Community rules". As so often happens in matters appertaining to the EEC, an innocuous-sounding phrase can mean a great deal. In this case it could be the start of the merging of our tax system into a Community system—all the better perhaps to facilitate economic and monetary union and the federal European State which some hon. Members apparently wish to see.

Article 3 is very short and I quote it in its entirety: Automatic exchange of information. For categories of cases which they shall determine under the consultation procedure laid down in Article 9, the competent authorities of the Member States shall regularly exchange the information referred to in Article 1(1) without prior request. That allows categories of cases to be extended by administrative action without further reference to the House of Commons. The House should take due note of the fact that this non-elected body, responsible to no one, can extend legislation without the House having knowledge of it. That is a serious matter. Therefore, the classes of taxpayers referred to in the preamble to the directive can be extended unbeknown to Parliament or to the people themselves.

The tax and, therefore, the personal affairs—make no mistake about that; it is not only the tax, but the personal affairs—of every individual and enterprise in the land can be made available to eight alien States. That is an unprecedented intrusion into the lives of British people by foreign Governments.

I find it quite incredible that such a prospect should be viewed by the House with apparent equanimity, especially as I am sure that, if it were proposed that the tax affairs of individuals should be made known to the Supplementary Benefits Commission, all hell would be let loose. There would be an outcry of colossal proportions. The Opposition and many of my hon. Friends, if not all of them, would be on their feet if this facility were extended to one of our own Departments of State, yet we are proposing to extend this facility and this private information about people's personal affairs to eight foreign Governments.

I should have thought that my right hon. and hon. Friends on the Front Bench, who have great concern for the rights of the individual, would be far more cautious in recommending the clause to the House. Indeed, I am sorry that they included it in the Bill.

But the Opposition also have responsibility here, because they prate loud and long about the rights and freedoms of the individual and are for ever condemning the growth of bureaucracy and its baleful encroachment on the lives of individuals. Through this clause and the directive, we see a massive extension in one fell swoop of a bureaucracy more pervasive and powerful than we have ever known in this country. We shall see how far Opposition Members care for individual freedom and the fight against bureaucracy when they vote on the clause tonight.

There are two other provisions in the directive to which I should like to draw attention. First, there is provision for officials of the tax authorities of other States to be present in this country. Presumably, the purpose is to enable them to make inquiries about our citizens. The British people will not take too kindly to being investigated by tax inspectors from foreign States, even if that is done with their own Government's consent.

The other provision which holds great danger is contained in article 4(2). This permits member States to extend the exchange of information provided for in the article beyond that which is specified in the article. Once again, by administrative action the powers of tax officials will be extended without further reference to the House. The scope of those inquiries will be extended without our knowledge and without the House having the opportunity to have its say.

8.30 p.m.

It will be said that the public need not worry about the directive because it is intended to catch only the multinational companies and other big organisations which endeavour to defraud the tax authorities in the EEC. It will be said that the individual and the small company have nothing to fear. Such an argument might sound plausible, particularly to some of my hon. Friends who, understandably and laudably, wish to dial with large-scale tax evasion. But I do not believe that the big boys will be caught. The minnows will be caught while the sharks swim laughing all the way to the bank. I hope that my hon. Friends will keep that in mind.

There are other and better ways which have been set out by the Labour Party to deal with multinationals. My hon. Friends should reflect that compulsory planning agreements would do far more than the whole of this directive to end tax evasion. Then the job would be done without involving the freedom and privacy of so many citizens who cannot and would not embark upon tax fraud.

During the debate in Committee, worries were expressed about the privacy of information given to foreign tax authorities and the use to which that information would be put. My right hon. Friend the Financial Secretary did his best to allay those fears. Indeed, he has tabled an amendment to try to deal with them. I do not believe that his amendment is a substitute for the rejection of the clause.

The tax authorities of other countries do not necessarily take the same meticulous care as is taken by our Inland Revenue Department to ensure the complete confidentiality of information revealed by the citizen for tax purposes. My right hon. Friend should examine the procedures in some other countries. He would probably find that our Inland Revenue Department is meticulous and mindful of the confidentiality of information that is given to it.

I return to the question of the standing of this House in relation to EEC legislation. In Standing Committee, the hon. Member for Eastbourne (Mr. Gow) asked the Financial Secretary: Will the right hon. Gentleman explain one point which is crucial to the vote that we shall be taking shortly? In the view of the Government, what would be the consequence for the United Kingdom Government and the United Kingdom Parliament if this Committee and later, the House were to remove clause 62 from the Bill? The clause that we are now discussing was clause 62 when we were in Committee. The Financial Secretary replied: We should be in breach of our obligations and would be taken to the European Court in due course."—[Official Report, Standing Committee A, 21st June 1978; c. 1653.] That was an intriguing answer. It certainly raises interesting constitutional and, perhaps, judicial questions. Let us reflect on the implications. By including the clause to implement the directive, the Government have clearly met their obligations. If the clause is rejected, the responsibility for failure to implement the directive will rest firmly on the shoulders of this House and of individual hon. Members.

In those circumstances, whom would the Commission prosecute? It could hardly be the Government, since they would have discharged their responsibility. Would it be Mr. Speaker? We do not know. Would the Speaker of this House, as in earlier times, be called upon to bear the punishment as an individual for the collective actions of Parliament? Is he to be taken to the Tower at the behest of this new absolute monarch in Europe, to be incarcerated and perhaps even fined or, even worse, beheaded, as were so many Speakers before him?

This is an interesting matter upon which we should certainly reflect. Perhaps Parliament as a body would be prosecuted, although I see some difficulty there. Perhaps it might be those individual Members of Parliament who voted against clause 63 and the edict of the EEC. Perhaps we would be surcharged as local councillors are surcharged, or perhaps we would be put in the Tower.

I do not know whether there would be a confrontation, but there could be. I sincerely hope that later the Government will have second thoughts and withdraw the clause, or that perhaps the official Opposition will join other hon. Members in trying to knock it out.

I said earlier that the clause and the directive which it seeks to implement are only the thin end of the wedge. I have been proved right. After I tabled the amendment, my attention was drawn to a new draft directive, R1123/78, which would extend the provision of directive 77/799 to value added tax. Since many hon. Members will not have seen it, I shall read out the explanatory memorandum. It was prepared by Her Majesty's Customs and Excise and is dated 28th June 1978. It reads Subject Matter… This proposal would amend Directive 77/799/EEC on Mutual Assistance in the field of direct taxation (on which an Explanatory Memorandum was submitted by the Board of Inland Revenue in May 1976) to provide for the competent authorities in Member States to assist each other in the correct assessment and collection of value added tax. Directive 77/799/EEC provides for:

1. (a) the mutual provision of information by each Member State to the others either on request or, in certain circumstances, automatically or spontaneously without prior request;
2. (b) inquiries to be carried out by a Member State at the request of another;
3. (c) the presence of another Member State's tax officials to be allowed in a Member State for the purpose of exchanging information; and
4. (d) continuous collaboration by Member States and the Commission so as to keep under review the assistance being provided under the Directive and to improve the machinery."

Thus, close on the heels of directive 77/799 comes another proposed directive to deal with VAT, which is bound to cause further headaches.

The small business men whom the Opposition so often befriend will feel even more harassed. The Opposition have made great political capital of late out of the harassment of small business people by Customs and Excise. If the new draft directive is passed—as it surely will be as night follows day if clause 63 remains in the Bill—I say particularly to the Opposition that they will have sold the pass for small businesses. They cannot in conscience oppose the draft directive if they support the clause.

Matters are even more serious than that. It will not be long before the EEC will collect its own resources through VAT. Every small business man who pays VAT will be visited not only by Her Majesty's Customs and Excise but by the customs and excise officers of foreign Governments. He will feel very harassed in those circumstances.

The Tories should consider the repercussions. They will never again be able to hold up their heads and say that they are the champions of small business men if they allow that directive to follow closely on the heels of the one we are discussing.

Mr. Max Madden (Sowerby)

My hon. Friend has been describing graphically the fate which lies in store for many sections of the community. Would he say what fate might befall tax consultants? Does he think that one of the Opposition spokesmen might have an interest in this matter?

Mr. Stoddart

I am obliged for that intervention, but I fear that under the directive the only fate which will befall tax consultants is that they will get richer because there will be more for them to do. It may therefore be welcome to tax consultants on both sides of the House. Nevertheless, let us hope that they will have the good sense to reject clause 63.

I hope that the House will realise the serious implications of the clause, not only for the taxpayer and the small business man but for the future of this House and the sovereignty of the British nation. If hon. Members understand them, they will undoubtedly reject the clause by a large majority.

8.45 p.m.

Mr. Powell

The more imaginative and historical portions of the eloquent speech of the hon. Member for Swindon (Mr. Stoddart) should not obscure the serious implications of what he said nor diminish the importance of the debate which he has initiated. Clause 63 is a clause without a predecessor, but, as the hon. Gentleman said, it is a clause which, if it stays in the Bill, is destined soon to have a successor.

The clause refers to Commissioners of Inland Revenue and their authorised officers; and the origin of the clause is a Directive of last year. The hon. Gentleman understated the instantaneity with which the debate on the clause in Committee was followed by the arrival, hot from Brussels the following day, of the next directive, the directive making the same requirements in respect of VAT. So this is only a preliminary to the corresponding clause in next year's Finance Bill, which will make the same enactment, only in respect of the Commissioners of Customs and Excise, as this makes in respect of the Commissioners of Inland Revenue.

We—those of us who have warned of the expanding nature of the claims and encroachments of the European Community—have usually had to wait at any rate a few months for the verification of our warnings. In this case the interval was measured only in hours. The hon. Gentleman was right, at the outset of this debate, to draw attention to the next stage.

It is important that the terminology of this remarkable and unprecedented clause should be studied carefully by the House. With great respect to Treasury Ministers, I am not absolutely certain—I have studied the proceedings in Committee again carefully—whether they themselves are fully alive to the implications of the wording of the clause. It purports to say that: No obligation as to secrecy imposed by statute or otherwise shall preclude the Commissioners of Inland Revenue…from disclosing…information required to be so disclosed by virtue of the Directive"— the directive referred to in the clause.

In the course of the Committee proceedings the Financial Secretary was asked to quote the statute in which these obligations were to be found. He referred the inquirer to the Taxes Management Act 1970. I take it—no doubt the right hon. Gentleman will correct me if I am mistaken—that the reference was to schedule 1, which contains the forms of declaration required of those who serve in the Inland Revenue. The declaration there says: I will not disclose any information received by me in the execution of my duties except for the purposes of my duties or for the purposes of any prosecution…or in such other cases as may be required by law. It is upon those last words that I want to rest for a moment.

The present confidentiality requirements allow for a disclosure as may be required by law in cases other than the execution of the duties of tax collection or proceedings in the courts. That perhaps casts light upon the term "required", which appears in the clause. Presumably the clause is intended to create a new requirement of law: by writing the law of the Community into the law of this country, a requirement of law is created which is covered by the declaration of confidentiality binding upon all Inland Revenue personnel.

But then one realises that, if that were so, we should not require a clause in this form. We should not then require to waive the obligation imposed by statute, because the obligation imposed by statute has an exception already where there is a requirement of law. So the case is by no means so simple.

Then our eye lights upon that remarkable word "preclude". The clause does not say that the obligation as to secretary shall not apply in these cases. It does not say that the requirements of the directive shall be requirements of law for the purposes of the Taxes Management Act 1970. It simply says that the obligation shall not "preclude" the Commissioners of Inland Revenue from complying with the requirements of the directive.

We are entitled to have a careful explanation from the Government of the reason why this clause is drawn in such a curious form. I will come at once to an indication, which was given in the debate in Committee, of what lies behind it.

The Financial Secretary was invited by the hon. Member for Edinburgh, Pentlands (Mr. Rifkind)—indeed, there is an amendment on the Amendment Paper tonight by the hon. Member to this effect—to write safeguards into the Bill. The reply of the Financial Secretary was clear. He said "We have only to do what is required by the directive and we have only to do it upon the terms of the directive itself." He proceeded to draw attention to the terms of the directive upon which he relied. He said "There is no need whatever to set any of this out, no need to indicate the safeguards, because they are in the directive, and clause 63 only covers what is required by the directive."

The Financial Secretary even quoted, not merely the articles of the directive but the preamble, which, at any rate in the construction of United Kingdom statutes, is not part of the law. But the Financial Secretary regards the preamble to an EEC directive as an integral part of the directive. The right hon. Gentleman nods assent. This is one important difference that we must bear in mind when we are reading the orders of our masters that come from Brussels. It is no use skipping through the "whereases." They are just as binding, just as carefully to be interpreted, as the articles, when we come to them and supposing that we can understand them.

In particular, the right hon. Gentleman drew attention to the requirement of confidentiality: whereas it is also necessary that the receiving States afford the information the same degree of confidentiality which it enjoyed in the State which provided it, if the later so requires. The right hon. Gentleman said, in Committee: Therefore the position, as I see it, is quite clearly safeguarded."—[Official Report, Standing Committee A, 21st June 1978; c. 1649.] The position of the Financial Secretary was that we can go through every bit of the directive—not "can"; but "must", for we are duty bound as a legislature, since we are embodying this in the law of our country—from the first "whereas" to the complimentary close or whatever they have in an EEC directive and pick out what we are actually required to do, because it is only where a requirement is imposed by the directive, so the Financial Secretary says, that this clause and the waiving of confidentiality will apply. Likewise also the safeguards attached to the requirements will automatically be invoked. So, we are bound by the requirements and protected by the safeguards which are written into the document.

That was the doctrine of the Financial Secretary. Presumably it was the doctrine of the Government. But no longer, for there is an amendment being taken together with this one—no. 98, in the name of the right hon. Gentleman the Chancellor of the Exchequer—which reads: Neither the Commissioners nor an authorised officer shall disclose any information in pursuance of the said Directive unless satisfied that the competent authorities of the other State are bound by, or have undertaken to observe, rules of confidentiality with respect to the information which are not less strict than those applying to it in the United Kingdon. Later on, therefore—if the clause were, by any mischance, to remain after this debate—up would pop the Financial Secretary to move into the statute a safeguard which, presumably, therefore, is not valid or existent by reason of the directive. If he says "Oh, this is only for greater assurance", can we, please, have written into the Bill all the other safeguards and all the other conditions which are in the directive? And can we please have them written in the construable language of a United Kingdom statute, instead of having to distil them as best we can from the terms of the directive?

The fact is that the Government have put their own foot through their claim that we are protected by the terminology of the directive at the same time as we are required by it to do anything. Whatever they believed three weeks ago, they no longer believe it now.

Let us see what are the requirements of the directive. Let us see what are the mandatory parts of the directive. What are the things in the terminology of clause 63 which are required to be disclosed by virtue of the directive"? Article 1 states that the competent authorities of the Member States shall exchange"— that is mandatory— any information that may enable them to effect a correct assessment of taxes on income and on capital. Article 3 states that they shall regularly exchange the information…without prior request. They "shall" do that: so that is a requirement; no request has to be made. They are to do it in "categories of cases" which are determined under the consultation procedure in article 9. The hon. Member for Swindon was perfectly right in saying that obligations are to be created and defined not by this instrument itself but by things done under this instrument which will in no way formally be brought to the know ledge of this House, let alone of the taxpayers of this country and their advisers. So there is to be regular exchange, and that is mandatory, too.

Then article 4 states that The competent authority…shall without prior request forward the information referred to in Article 1 (1)…in the following circumstances". Those are then set out. I shall not quote them all. The first is that the competent authority has grounds for supposing that there may be a loss of tax in the other Member State". So, if there are "grounds for supposing", then, without prior request, it is mandatory in those circumstances for the information to be given. "We think it is quite possible that taxpayer X may be liable to more tax in France or Luxembourg than he is paying. Send his file." That is not voluntary. It is a requirement. No doubt it will apply presently to Athens, presently to Lisbon, presently to Madrid, and presently to Ankara. The files will be going further and further afield.

Mr. Ian Gow (Eastbourne)

Valetta?

Mr. Powell

Oh, dear, I did not know about that. It gets worse and worse, Mr. Deputy Speaker, but I do not want to pile on the horror. It is bad enough that our tax files should go across the Channel and that there should be a requirement for the transfretation of our income tax papers.

Mr. Hugh Dykes (Harrow, East)

There is no such word.

Mr. Powell

No such word as "transfretation"? If the hon. Member wishes to be well employed during the drier parts of my speech, he may consult the full Oxford Dictionary, where he will find "transfrctation" all right.

9.0 p.m.

But once again the warning of the hon. Member for Swindon comes in point. We may think that we know the total number of circumstances in which it will be compulsory, without request, to send the file. I use the term "send the file" as a shorthand expression for giving the information. Not at all. The "competent authorities", when they get their heads together under the consultation procedure in article 9, may extend the exchange of information provided for to cases other than those specified therein. So there is no limit to the circumstances in which it is requisite for this information to be sent from this country to the other countries of the Community.

We are, however, provided with certain conditions in which the information may be refused.

Mr. Dykes

Does not the right hon. Gentleman agree that all that he has just described with the same language, terms and procedures, happens already under the existing procedures of double taxation relief agreements?

Mr. Powell

It does not happen, as the hon. Gentleman will discover if he reads the report of the Committee of another place and the evidence which it took on this directive. He will find there clearly set out the circumstances in which this goes beyond what is done under the double taxation agreements. By the way I should be grateful if, in his winding-up speech, the Financial Secretary could explain the way in which double taxation agreements are accommodated with the confidentiality requirements of the Taxes Management Act of 1970. It may be that there has been a provision somewhere which automatically scoops up all the double taxation Acts and removes the safeguard of the 1970 Act. That is a point which it would be helpful if the Financial Secretary mentioned.

Since the hon. Member for Harrow, East (Mr. Dykes) raised it, he may be interested to know that the spontaneous provision of information in certain cases—those are the cases to which I referred—is not provided for under the double taxation arrangements. The double taxation arrangements are narrowly concerned with the affairs of cases where relief is claimed by a taxpayer under those arrangements and where, of course, the relevant information in both countries must be made available. This is a very different matter. As the hon. Member for Swindon said, this is the beginning of a joint taxation system and administration in the EEC as between ourselves and the other countries of the Community.

There are quite a number of provisions in this directive which are permissive, which include the word "may" and not the word "shall". I think that the Financial Secretary ought to say clearly to the House whether he regards this directive as binding only in so far as it contains the terminology "shall", and not binding in so far as it contains the terminology "may". I ask him that particularly because of that extraordinary word, "preclude", to which I drew attention at the beginning, in the terms of this clause, which states: No obligation as to secrecy…shall preclude the Commissioners of Inland Revenue…from disclosing information". I am inclined to construe that as meaning that the Government regard the directive as binding upon this country not only in its mandatory portions but in its permissive portions. They want to be able to act in accordance with the permissive parts of the directive as well, and they want to be able to show our masters in Brussels, for it must be remembered that this work has to be shown up. By the end of the year we must turn this in at Brussels, to prove that we have done what is required of us.

I believe the reason for that word "preclude" is so that the Government will be able to tell the Community that they will be able to fulfil not only the mandatory but the optional portions of the directive, because they have framed the clause so cunningly with the word "preclude"—perhaps someone thought that the House of Commons might not notice it. "We shall do all that is required of us by the directive", they will say, "and the Inland Revenue will not be precluded by the conditions of confidentiality from transferring the information. That is the reason why we have gone to all this trouble, instead of simply making the actual requirements part of the law, with which, automatically, it would then be proper for the Inland Revenue to comply".

Since this is an unprecedented provision, it was right that it should be examined, even on Report, textually and carefully and, indeed, that we should have a much more careful exposition of what is meant by this instrument which is now written into our own statute book. We have been used for a long time to legislation by reference, and we have complained about it for a long time. But this is legislation by reference to a non-statute, the outlandish description of which is actually written into the clause and printed in the margin of the Bill.

Mr, Douglas Jay (Battersea, North)

May I ask the right hon. Gentleman a question at that point, because I think that he was a member of the Standing Committee and I was not? The clause provides that the Commissioners are empowered to disclose to the competent authorities of another member State any information required to be so disclosed by virtue of the directive of the Council of the European Communities dated 19th December 1977, no. 77/799. Supposing that directive were to be amended—or perhaps I should say "revised". Would the altered conditions of the directive automatically constitute an obligation under this clause, or would it be a different directive in those circumstances? I think that we should be sure about that, otherwise we are handing a complete blank cheque to the Commission to do anything that it likes.

Mr. Powell

I am sure that the Financial Secretary has taken note of that question and will answer it. But, at any rate, when we come to the next directive—the one for VAT—I have no doubt that we should, putting it in the conditional, require another clause.

I repeat, I believe that we are entitled to look at this provision with extreme care because we are creating a most important precedent. But we are also entitled to look at it at large. After all, we are legislating for the taxation of the people who sent us here. To legislate for taxation is the reason why we are sent here and why we have our other powers. So this is at the heart of our quality as Members of Parliament and as a House of Commons.

We are duty bound to ask ourselves whether we ought to enact tinder these vague and unlimited terms the disclosure to the tax authorities of other countries of information obtained under the authority of this House from persons under the jurisdiction of this House—information which we would not dream of allowing to be communicated to another branch of the Administration. If the answer is that those who sent us here do not expect it of us and were not warned that we should authorise that disclosure of their affairs, we ought not to do it. That is a matter which is unaffected by any argument about treaties, directives, and the rest of it.

We have a plain and simple duty to those from whom we derive our powers to tax and our powers to legislate. That duty is inconsistent with allowing this clause to remain in the Bill.

Mr. J. W. Rooker (Birmingham, Perry Barr)

In principle, I am in favour of somethting like clause 3. However, I am glad that I have listened to the speeches of my hon. Friend the Member for Swindon (Mr. Stoddart) and the right hon. Member for Down, South (Mr. Powell). I depart from the speech of the right hon. Member for Down, South on a matter of principle. I am not in favour of the closed tax system, which mitigates against most of my constituents who are not fiddling their taxes.

I want the tax system to be far more open. I do not see why tax returns should not be made available as public documents. I know that that would upset Conservatives, and I know that the paper work would be massive, but at least it would be one way of ensuring that the system was open and people paid their proper dues. It would have a self-regulating effect on tax abuse and tax avoidance. It works quite well in other countries, so why should it not work here?

This applies equally to companies. I have not read the Committee proceedings on this matter; the House will know that I was prevented from serving on the Committee this year. If there is a means under Common Market legislation of making sure that multinational companies do not run not around the world, playing off one Government aginst another, in order to lessen their tax liabilities, and if advantage comes as a byproduct of being in the EEC, we should use it and get the full benefit from it.

I quote one example. It concerns the multinational company of Hoover Ltd. This is a very large American-controlled multinational. In its 1976 accounts there was a note in small print at the foot of page 19 which said: Hoover Ltd's taxation liabilities for a number of years have not yet been agreed due to discussions with the Inland Revenue regarding the pricing of export sales. It so happens that Hoover Ltd. has overseas associated companies in Belgium, France, Germany, Holland and Italy—all EEC member States. Clearly, someone in the Inland Revenue has discovered that Hoover has been fiddling transfer prices. Of course, it is able to do this as a multinational with overseas associated companies and overseas subsidiaries.

I do not know yet whether the company's discussions with the Inland Revenue were completed. My right hon. Friends on the Treasury Bench are prevented from knowing any details of particular companies' taxation affairs—which is ludicrous in the extreme—so there is no real way of finding out whether this matter has been resolved. If my right hon. Friend the Financial Secretary can convince me that clause 63 as amended would obviate the sort of delay that has taken place in the case of Hoover and that we could go in straight away without any of the barriers that are put up at present. it would convince me that my original idea was right—that I am basically in favour of clause 63.

There are other matters that need illuminating. One is the question of the parts of the United Kingdom—or I consider them so—that are not member States of the EEC. I refer, of course, to the Isle of Man and the Channel Islands. The more that clauses like clause 63 are enacted, the more it will put the onus and the pressure on the Isle of Man or Jersey and Guernsey to become real tax havens—much more so than they are at present. They will also be tax havens for other EEC States. Presumably the Germans and the Dutch who have been fiddling their taxes will not like the operation of this directive as it affects them in their own States and it will seek to bolster up the economies of these offshore islands.

My right hon. Friend and I had correspondence earlier this year about this matter, particularly in relation to the Irish banks. I do not sort out the Irish banks particularly, because there are other banks operating in this country that are controlled from outside the United Kingdom and have a branch here. It is possible for United Kingdom citizens to walk into those banks, open an account and ask for the account to be kept outside the United Kingdom, so that the interest that may accrue on those accounts is not auto matically disclosed to the United Kingdom Inland Revenue.

Of course, if those people do not fill in their tax returns accurately, which by law they are supposed to do, there is no way of finding out how much money has accrued in interest through these various bank accounts, whether they be in other Common Market countries or in the Channel Islands. This aspect of the matter has not been adequately tackled by the clause, and I hope that my right hon. Friend will at least allude to it in winding up the debate.

9.15 p.m.

This is not an unimportant matter. The more complicated the tax law becomes and the more we are caught in the trap of having to slip Common Market directives into Finance Bills, at the fag end, usually—last year there was another example concerning membership subscriptions to trade unions and professional bodies, which caused considerable discussion in Committee, when it was slipped in by a schedule; and the right hon. Member for Down, South says that this will happen with VAT again next year—the more difficult it will be for us to represent our constituents in their individual dealings with the Inland Revenue.

I say that only because I have examples of the constituent who has a major tax problem because of a business problem. But like the constituents of many of my hon. Friends, the overwhelming majority of my constituents do not have overseas bank accounts and do not arrange their affairs so that the German, Dutch and other tax authorities might be inclined to make inquiries of our Inland Revenue. It is not such a matter.

This concerns the "sharks". My hon. Friend the Member for Swindon says that they will get off. Frankly, if they are to get off, I do not know why we are here debating the clause. Unless the Treasury Bench can convince us that the purpose of this provision is to catch the sharks, clearly it is totally unfair and it is a waste of the time of the House to be making it anyway.

But the sharks must be caught. The abuse within the tax system is something that we do not debate enough in the House. Some Opposition Members make constant imputations against the social security system, but the tax system and all the allowances within it provide a social security system for companies which do not pay their rightful taxes, and the same applies in relation to well-heeled individuals. It is exactly the same argument.

Mr. Martin Flannery (Sheffield, Hillsborough)

Is the hon. Member for Aberdeen, South (Mr. Sproat), who always raises social security matters, present in the Chamber now?

Mr. Rooker

I take the point that my hon. Friend makes. The hon. Member for Aberdeen, South (Mr. Sproat) is, once again, missing during a debate on taxation, as he always is. However, anything that operates in the Common Market to catch these sharks must be good and must be welcomed. Therefore, in principle I agree with it.

Mrs. Audrey Wise (Coventry, South-West)

Does my hon. Friend agree, however, that the best way of dealing with multinationals is to disclose the information to the workers concerned? Would not that be far more effective, because tax authorities might well not recognise a transfer pricing arrangement if it were before their eyes, because they lack the technical knowledge to do so, whereas information disclosed to workers would surely be by far the most effective method.

Mr. Rooker

My hon. Friend is perfctly right. We should be debating and enacting the proposals in the 1974 Labour Party manifestos to deal with multinational corporations. Quite clearly, those were on the agenda. They are still on the agenda. Unfortunately and tragically, they are not in a Bill that is before the House.

But my hon. Friend is right. The workers can recognise the little tricks and fiddles that companies get up to, because the workers are dealing with the paper work and they know what is happening within their companies. This is particularly so in the organised white-collar sector in private industry. Some 10 or 15 years ago it was not well organised in terms of trade unions, but these days the trade unions, such as APEX and ASTMS in particular—which has a first-class record in these matters—are educating their members on what to look for, so that we can spot what companies are up to.

Far be it for me to say that we can rely on the Commissioners of Inland Revenue. Every time anyone refers me to the Commissioners of Inland Revenue and says that one can trust them and rely upon them, I am reminded of the fact that Mr. John Poulson was a commissioner of the Inland Revenue. For me, that is the end of the argument. That one factor always remains uppermost in my mind. Therefore, I do not have the same confidence in that sector of the establishment as apparently other hon. Members have.

Let me deal with the point about competent authorities. I am well aware that the matter is well defined in the directive, but I do not want us to get into a position such as that enjoyed in Richard Nixon's days in the United States. We all know that anybody in that country who was suspected of being a dissident or who might cause a spot of bother was subject to investigation by the Inland Revenue services. I do not want that to happen here. I am in favour of opening up the tax system for everybody, not for the secret few who pull the levers of power and wish to put pressure on those who may be knocking the system.

I believe that there is a danger in the way this provision is worded. There is something to stop the authorities in this country examining the files of, for example, my hon. Friend the Member for Keighley (Mr. Cryer). I refer to my hon. Friend, who, as we all know, is Under-Secretary of State for Industry, because I see that he is sitting on the Government Back Benches. This argument could also apply to my hon. Friend the Member for Sowerby (Mr. Madden), who is a genuine Back Bencher. However, there is nothing to stop the authorities in this country asking competent authorities abroad to obtain details relating to somebody in this country.

There is nothing to stop MI5, MI6 or DI6—I do not know which it is, but they are the ones we are not allowed to debate or ask questions about—from asking a competent tax authority in Germany to make inquiries about somebody in this country. That can happen by using this sub-contracting clause.

Mr. Christopher Price (Lewisham, West)

In a curious sense, the clause is a mirror image of the freedom of information legislation mentioned by the Prime Minister at Question Time today, which, he said, he had not the slightest intention of enacting.

Mr. Rooker

I heard my right hon. Friend the Prime Minister make that remark. When I heard that statement on the radio, I became even more convinced that Prime Minister's Question Time should not be recorded live.

My hon. Friend makes a valid point. That danger exists. Treasury Ministers do not know what the secret service gets up to. They have not been told the name of the company which has perpetrated the £200 million rip-off as a result of an artificial tax scheme. The fact that the Inland Revenue will not tell them the name of the company is an outrage.

With that example before us, they cannot convince me that they are 100 per cent. sure about what the security services get up to when using this type of provision. I know that this is a danger, and I am arguing against my own case. I am in the classic position that the more I speak, the more difficult it is for me to decide how to vote. I am seeking to make the point that I have an open mind on this subject, unlike the other 500 hon. Members who are not present. There are those of us who come to listen to these debates so that we may have a valid idea of what we are doing on this important provision. This matter is being brought up on a Thursday, it is a matter of supreme substance and it might well have gone through "on the nod". However, I shall resume my seat before I get into more trouble. I shall listen to the rest of the debate and make my decision later.

Mr. Rifkind

The clause in its present form shows a glaring gap in the procedures applied to EEC legislation. It seeks to implement, for all practical purposes, a European directive. An hon. Member who wishes to know what he is approving has no way of knowing, from an examination of this legislation, what is involved in the directive. I make no comments on the merits of the directive, but surely the least that we should require is that when a clause in a United King dom Bill seeks to give legal effect to an EEC directive, that directive should appear somewhere in the Bill, at least as a schedule, so that hon. Members, without too much difficulty, can find out what they are being asked to implement.

When I first took an interest in this matter it took me some months to get a copy of the directive. That is not a satisfactory way of going about our proceedings. It has nothing to do with the merits of the issue, but it means that it is difficult for hon. Members who wish to take an interest in these matters, and those who may only now wish to understand what is involved, to appreciate the problems.

Mr. Nick Budgen (Wolverhampton, South-West)

Surely it is much more serious than that. What about the position of the taxpayer? An hon. Member has an opportunity of getting the document, but a taxpayer has no such opportunity.

Mr. Rifkind

I do not entirely agree with my hon. Friend. A taxpayer can get the document. The point is that the House is being asked to give legal effect to a directive, but it is not easy to find what we have to give legal effect to. That situation could be changed without great difficulty, and I hope that the Government will consider the desirability of changing it in the near future.

I cannot agree with the interpretation of the right hon. Member for Down, South (Mr. Powell) of the effect of the clause. The Opposition amendments are those that I moved in Committee. I am aware of the necessity and desirability of ensuring the the rights that will be available under the directive should be restricted to the legitimate purposes for which the directive seeks the assistance of member States.

The right hon. Memeber painted a rather terrifying picture of confidential tax documents flying across the face of Europe. Tax documents will be made available to Paris, Bonn, Rome and possibly to Ankara and Madrid, but they will also be coming in the reverse direction—to London. The question is not simply that British tax documents may be flying around the Continent, but whether, in a Community that will continue to exist—whether the right hon. Member for Down, South and others like it or not—it is reasonable or unreasonable that there should be facilities for exchanging tax information in order to pursue the common objective of preventing tax evasion. I do not believe that that is an unreasonable objective, and in so far as the directive seeks that objective it is not objectionable.

Reference has been made to double taxation agreements. By chance, the United Kingdom already has such agreements with every other member of the EEC and, to a large extent, those agreements already provide for the exchange of such information. In certain technical ways, there are differences. The process is not spontaneous, as is the method provided for, in some respects, by the directive, but the basic principle that tax documents will go from the United Kingdom to other States in the EEC and to other parts of the world is not an extraordinary new principle.

Mr. Jay

If the hon. Gentleman were right in thinking that all that is to be done under the clause can be done already through double taxation arrangements, what is the necessity for the clause?

Mr. Rifkind

Although the United Kingdom has double taxation agreements with other member States of the EEC, that does not necessarily apply to all the members of the Community. The directive is an EEC document and although, to a substantial extent, it is unnecessary in the United Kingdom, it is not unnecessary if we are trying to get a common agreement among the States of the EEC.

I did not suggest that there was no difference between the double taxation agreements and the provisions of the directive. I said that, to a large extent, the powers provided in the directive already exist for the United Kingdom in the double taxation agreements. This was confirmed by the Financial Secretary, who told me recently: The information which Clause 62 would enable the Inland Revenue to disclose to the competent authorities of the other member countries of the EEC is very largely information which they are able already to disclose to the competent authorities of the countries with which the United Kingdom has agreements for the relief of double taxation … The United Kingdom has such agreements with all the other EEC member countries."—[Official Report, 3rd May 1978; Vol. 949, c. 194.] To a large extent—I put it no higher than that—we already provide that in formation, and no sacred principle is being breached. We are not providing for the first time that the tax documents of British citizens will be leaving our shores for tax purposes; that already happens, not just with the EEC, but with the tens of countries around the globe with whom we have double taxation agreements. It is wrong to suggest that this is a fundamental breach of the rights of the citizens which has never before been contemplated.

Not only has it been contemplated before; it has been done, without a squeak of protest from anyone. Indeed, there should not have been any protests, because it is a reasonable, civilised and sensible approach to the mutual tax arrangements of the countries concerned.

9.30 p.m.

I turn to the specific point in respect of which I share the criticisms of many hon. Members who have expressed their views both in Standing Committee and on the Floor of the House. It is desirable that there should be an EEC directive to enable the transfer of information between member States and the Community. However, every precaution should be taken to ensure that the information that is provided to other member States should, first, have the same degree of confidentiality that that information would have in the United Kingdom, and, secondly, be capable of being used only for tax purposes or for purposes of litigation related to fiscal matters.

It was on those two aspects that I tabled amendments in Standing Committee. At that stage the Government were hostile to the proposition. They said that it was not necessary. They said that it was pointless. They said that the confidentiality presently provided was satisfactory, and that there was no problem and no cause for concern.

The House will be able to imagine my surprise and amusement when the amendments on Report were tabled and I found on the Order Paper an amendment that had exactly the same effect as my amendments—in other words, to ensure that any information provided would have the same degree of confidentiality.

I am not certain why the Financial Secretary was unable to accept the drafting of the original amendment that we debated in Committee, but I am delighted that the Government are to accept the effect of that amendment. That marks significant progress. That is all the more reason why we should be disappointed and the House concerned that, as yet, the Government have not accepted the second branch of the argument. In some respects it is an even more important point of principle. It is one that should concern hon. Members on both sides of the Chamber irrespective of their attitude towards British membership of the Community. I am a strong supporter of British membership and I do not want to reduce or modify it in any way.

So far the Government have not announced any acceptance of the second objective, which is to ensure that any information provided under the directive should not be capable of being used for purposes other than taxation or litigation related to taxation. On first glance at the directive it seems that our concern on this issue is unnecessary and that we are creating false alarms. For example, one section of article 7(1) declares that information provided shall in no circumstances be used other than for taxation purposes or in connection with judicial proceedings or administrative proceedings involving sanctions undertaken with view to, or in relation to, the making or reviewing of tax assessment. That is categoric and specific. If that were all that was to be found in the directive, there would be no need for amendment no. 9. However, the sad fact is that if we turn to the next page, to article 7(3), we find that it is stated: Notwithstanding paragraph 1"— that is the paragraph that I have quoted— the competent authorities of the member states providing the information may permit it to be used for other purposes in the requesting state, if, under the legislation of the informing state, the information could, in similar circumstances, be used in the informing state for similar purposes. That is rather complicated, but the article is providing that if, for example, in the United Kingdom the Commissioners of the Inland Revenue are permitted to allow information provided for tax purposes to be used other than for tax purposes they may give permission to the other European state also to use information provided for other tax purposes.

In that respect the article goes way beyond the double taxation agreements that have been arranged with any other States as far as I am aware. In answer to a Question that I put to the Financial Secretary on the scope and extent of double taxation agreements with EEC States he replied on 17th May: The agreements vary to some extent but at the widest"— that is the crucial phrase— they limit the exchange of information to that necessary for carrying out the law relating to the taxes which are the subject of the relevant agreement."—[Official Report, 17th May 1978; Vol. 950, c. 230.] That is satisfactory and desirable, but that is not the position with the EEC directive. The question becomes: can the United Kingdom Commissioners of Inland Revenue at present allow information that they receive to be used in the United Kingdom for other tax or related tax matters?

Mr. Bryan Gould (Southampton, Test)

Is there not a further point that makes the argument for the amendment even stronger—that it is at least arguable that the clause does not incorporate the directive? It simply defines the information which is exempt from the requirement of confidentiality by reference to the directive. If that is what the clause does, it follows that the provisions, conditions and safeguards provided for in the directive will not be part of the domestic law and therefore will have to be dealt with separately.

Mr. Rifkind

To a large extent I agree with the hon. Gentleman. He is correct in saying that the clause refers only to issues of confidentiality. It makes no reference to the purposes for which the information may be used. The information that is provided, given the amendment to be accepted by the Government, must have the same degree of confidentiality. But nothing that has yet been accepted by the Government or that is in the clause in any way limits the purposes for which confidential information may be used.

The point that I was about to make when the hon. Member for Southampton, Test (Mr. Gould) intervened was that at present the United Kingdom Commissioners of Inland Revenue may in certain limited circumstances make information available other than for tax matters. I understand that they can make information available both to the Customs and Excise and to the Department of Health and Social Security.

These are very restricted and strictly controlled matters. However, the principle exists. Therefore, it is possible that the United Kingdom Commissioners of Inland Revenue might have the power, though they might choose not to use it, to permit tax information sent to a member state to be used other than for tax matters. Would it be obnoxious if they used that power? Whether or not it is obnoxious in terms of the general principle involved, in my view it goes beyond this directive.

The right hon. Member for Down, South is not very impressed with or concerned about the contents of the preamble to the directive, but I think that it is legitimate to look at the preamble to ensure that the powers granted by the House do not go beyond the purpose of the directive.

The preamble states, as one of the purposes of the directive: whereas it is therefore necessary that the Member States receiving such information should not use it, without the authorisation of the Member State supplying it, other than for the purposes of taxation or to facilitate legal proceedings for failure to observe the tax laws of the receiving State". In other words, the purpose of the directive is limited to the objective of preventing tax evasion and of providing information to that end. Therefore, even though the Government believe that the Commissioners of Inland Revenue would not wish to use the power for that purpose, it is right and proper for the House to introduce the safeguard proposed to amendment no. 9 to ensure that there is no doubt on the matter.

We know that the Government believe amendment no. 8 to be unnecessary, but they have agreed that it should be included. On the same basis, for the avoidance of doubt, there is an overwhelming argument for including amendment no. 9. The Government concede that no harm would be done. At least it is an unnecessary amendment; at most it will be an important provision for the protection of the citizen.

Certain hon. Members on both sides of the House are using this debate to restate their basic hostility towards or, indeed, support for our membership and development of the Community in one or other direction. It is legitimate for them to do that. But, even for those of us who are strong supporters of British membership of the Community and who do not believe that the debate should be about the fact of our continued membership, that is no reason why we should not ensure that, when information that is relevant to the personal affairs of our fellow citizens is legitimately and rightly provided to other member States, we impose such safeguards as are consistent with our obligations to honour the commitments that have been entered into with the other member States—safeguards that do not infringe, inhibit or prevent any of the legitimate purposes for which the directive has been established, and which will at least ensure that there is no abuse of the directive and no danger of improper use of information which is private to the citizen and which is provided under the directive.

I hope that whatever hon. Members think about the Community they will agree that this amendment is a useful, desirable and helpful addition to the Bill.

Mr. John Cronin (Loughborough)

The hon. Member for Edinburgh, Pent-lands (Mr. Rifkind) made an interesting and well-informed speech. My only criticism is that it lacked the desirable quality of brevity. Many hon. Members are anxious to return to their constituencies as soon as possible. I propose to co-operate with that wish by being as brief as possible—briefer than the subject deserves.

My hon. Friend the Member for Swindon (Mr. Stoddart) and others have done a useful service by drawing this matter to our attention. It is most undesirable that there should be any move to give to the EEC Commission or Council powers which they do not already possess. It is particularly important that there should be no move towards any form of federalism.

The EEC is unpopular, and rightly so. The EEC budget is a complete shambles, the common agricultural policy is a laughing stock throughout Europe and it is necessary that there should be stringent reforms in the near future. Any attempt to give extra powers to the EEC without careful scrutiny should not be tolerated. I hope that my right hon. Friend the Financial Secretary will give a detailed explanation of the effect of clause 63. I hope he will assure us that it is not an attempt to move towards a form of joint taxation system in the EEC.

What criterion should we use when examining the clause? The obvious criterion is that of the national interest alone. It would be most undesirable if this clause or similar legislation were used for the purpose of fighting the old battles, which are long finished, about whether Britain should be in the EEC. The right hon. Member for Down, South (Mr. Powell) suggested that the old battles were still in his mind.

There is no escape from the fact that tax avoidance and evasion is occurring on a large scale through the vehicle of European countries or the Channel Islands and the Irish Republic. This must be stopped. We owe it to our constituents to put an end to tax avoidance and evasion as far as is possible. Anything which is gained by tax avoiders and evaders comes out of the pockets of our constituents and of all of us. We must examine the problem carefully.

Mr. Budgen

Does the hon. Member agree that if the House decides to do away with the whole principle of confidentiality, it should be done directly and openly after proper and full debate and not by a side wind?

Mr. Cronin

We are considering the matter openly. That is why there are so many hon. Members in the Chamber.

Not only are multinational companies evading and avoiding tax on a large scale, but companies that trade only in the United Kingdom are avoiding tax. Private individuals are doing the same thing on a large scale, either directly in European countries or through intermediate countries.

The main objects of the directive are desirable. Article 1 deals with the exchange of information which will help in the collection of taxes. It is in the interests of us all that anything that makes the collection of taxes more efficient should be encouraged.

The other highly important section of the directive is that which provides that the competent authorities, without request, should forward information to other countries where it appears that the other countries are losing tax that they should receive. This is the most important part of the directive for stopping the evasion and avoidance of tax among the various European countries, and it should be welcomed.

The directive is a desirable move towards the more efficient collection of taxes. It will benefit this country and is. therefore, in the national interest. We should have from the Financial Secretary, however, a careful and detailed explanation of how it will work.

9.45 p.m.

Mr. Dykes

Partly because of the quality of the speech by my hon. Friend the Member for Edinburgh, Pentlands (Mr. Rifkind) and partly because of the way he outlined his misgivings on the potential use of exchanged information, I do not need to go into detail on this issue. It is a matter that we should deal with carefully. There is a clash of sentiments and views on each side of the House on the clause which transcends the by now historical and time-honoured views that are held about the rights or wrongs of membership of the EEC.

Although there appears to be a general wish to retain confidentiality, there is something to be said for the opening remarks by the hon. Member for Birmingham, Perry Barr (Mr. Rooker)—I hope do not embarrass or discomfort him by saying so—that, if we switched completely to an open tax system in which tax figures were published for individuals, companies and all tax-paying entities, this would create a different position which in due course might command public support.

It is reasonable, however, that we should garner the impression that the 'overwhelming majority of the public, even if they are worried about tax avoidance and evasion by companies or individuals, would none the less continue to support the principle of confidentiality. Therefore, hon. Members should be satisfied to the extent that clause 63 can adequately cover that principle and provide within reasonable, known and agreed procedures among the member States a legitimate exchange of information when the fiscal authorities of member States need it to ensure that proper taxes are paid at proper rates in the proper legal manner.

It is not necessary, therefore, for us to go back to the fundamental debates about whether we should be a member of the Community—the kind of thing that the right hon. Member for Down, South (Mr. Powell) with monotonous repetition, but with great skill and adroit speeches, does repeatedly. However, I believe that he does the House and the country a disservice in raising unnecessary fears and in espousing excessively alarmist arguments about the implications of our membership in ail sorts of spheres.

We knew, as the country knew—the referendum result endorsed it—that by joining the Community many legislative proposals would come along of which at that stage we know nothing. But we knew that they would be within the treaty framework, safeguarded by the interrelationship of the institutions and with the final legal protection of the European Court as the ultimate court of interpretation—

Mr. Gow

But not this House.

Mr. Dykes

This House is able to exercise its will in giving Ministers proper guidance and advice in advance of Community decisions. That would happen if only the Government organised the scrutiny procedure properly on all aspects of Community legislation. It is a pity that that is not tackled, as the House would then be doing its job more efficiently and to the satisfaction of the public. We know that these procedures are abortive because the Executive lacks the will to put them fully into practice in a way which would please hon. Members, irrespective of our views on the Common Market.

Like my hon. Friend the Member for Pentlands, and not having been a member of the Committee, I ask the Financial Secretary, seriously to consider adopting amendments nos. 8 and 9. Together with the original clause and the coincidence of the Government's Amendment no. 98 on reciprocal confidentiality, they would provide the essential safeguards that we need to make the clause effective for the public and to provide the proper reciprocal tax information-sharing that we need throughout the Community and not only bilaterally between member States which happen to have mutual tax treaties. I reiterate that plea and hope that the Financial Secretary will satisfy the House on a very strong demand which comes from the Government side as well as from this side.

I would apologise to the hon. Member for Swindon (Mr. Stoddart) if he were here for the fact that I was not present for his initial remarks, but I think that I heard most of his speech. I heard him say that the United Kingdom would be sent to the European Court, that a dreadful fate would befall us and that you. Mr. Speaker, might be threatened with the court passing sentence on you. I could go into more lurid detail, but I deliberately refrain.

However, the hon. Member also wilfully misled the House and the public—I do not like to use that phrase, but it is what he did—because he did not finish up with the obvious accompaniment that taking a member State to the European Court because the Commission or, in certain limited circumstances, the Council of Ministers would feel that it was in breach of an agreed piece of Community legislation, passed and ratified by all the member States, would mean that the European Court would consider all the factors, including the relationship of that member State's own domestic legislation to the agreed Community instrument. There is no way in which the hon. Member could anticipate the court's judgment in those circumstances.

The public should be given the proper information on what the European Court means—namely, that it provides protection for the public throughout the member States, so that Community law can be legally and properly upheld. It would therefore be entirely wrong for any hon. Member to assume that the European Court would automatically come down, almost without considering the case, on the side of the Commission and against the member State. It could work the other way round as well.

In that connection, one would have to bear in mind that the original legislation had been agreed by the supreme legislative body in the Community, the Council of Ministers, empowered by the Governments of the member States. That, too, provides the initial step in the legislative procedure of the Community which in tax and other legislation eminently satisfies the British public. It is a great shame that it does not satisfy the right hon. Members for Battersea, North (Mr. Jay) and Down, South.

Mr. Gow

The amendments and the clause raise the whole issue of the relationship of this House and the Government to the European Economic Community. In Committee the following question was put to the Financial Secretary: Will the right hon. Gentleman explain one point which is crucial to the vote that we shall be taking shortly? In the view of the Government, what would be the consequence for the United Kingdom Government and the United Kingdom Parliament if this Committee, and, later, the House, were to remove Clause 62 from the Bill? I should explain that the clause was then clause 62, although it is now clause 63. The Financial Secretary replied: We should be in breach of our obligations and would be taken to the European Court in due course."—[Official Report, Standing Committee A, 21st June 1978; c. 1653.] I wish to challenge that proposition. I wish to differentiate between legislation which comes from Brussels, which in the Government's view is automatically the law of this country, and directives issued from Brussels, which require further legislation by this House. Clearly, in the Government's view the directive that we are seeking to enact in our law is not one that has effect without further legislation by this House. If the Government disagreed with that proposition the clause would be unnecessary.

Article 12 of the directive provides: Member States shall bring into force the necessary laws, regulations and administrative provisions in order to comply with this Directive not later than 1 January 1979 and shall forthwith communicate them to the Commission. That is the final article, although one may read on to the terrifying last words: This Directive is addressed to the Member States. Done at Brussels, 19 December 1977. Nevertheless, the Government, in interpreting the directive as being obligatory on them, have involved themselves in a paradox, because the clause is the subject of an amendment by the Government themselves. By tabling an amendment they are acknowledging their own power to legislate the form in which effect is given to the directive.

But there is another matter to which I hope the Financial Secretary will address his mind. In my submission, the penultimate paragraph of the preamble means that it is not obligatory on the Government to implement the directive in our Finance Bill. It says: Whereas a Member State which is called upon to carry out enquiries or to provide information shall have the right to refuse to do so where its laws or administrative practices prevent its tax administration from carrying out these enquiries or from collecting or using this information for its own purposes, or where the provision of such information would be contrary to public policy or would lead to the disclosure of a commercial, industrial or professional secret or of a commercial process, or"— these are the words that I want to emphasise— where the Member State for which the information is intended is unable for practical or legal reasons to provide similar information". the directive is not obligatory. I do not believe that it is obligatory on the Government to enforce the directive. If the clause were removed from the Bill, in the Government's view we should be taken before the European Court. If that should happen, so be it. Nothing more underlines the surrender of the power of this House over taxation, over fiscal legislation, than the Government's attitude and the inclusion of the clause.

That is why I support the amendment in the name of the right hon. Member for Battersea, North (Mr. Jay). If we remove the clause, no violence will be done to our own fiscal legislation, and no violence will be done to the fiscal procedures of the Community. What we shall achieve if we remove it is the assertion of the supremacy of this House over fiscal and taxation matters. That is why I shall vote for the right hon. Gentleman's amendment.

10.0 p.m.

Mr. Peter Brooke (City of London and Westminster, South)

In the context of what I sometimes have to listen to in this House, there is an element of irony in the Member of Parliament representing the City rising to defend the Government over a clause relating to tax integrity. My hon. Friend the Member for Harrow, East (Mr. Dykes) referred to the paradox and the eddies that flow across the House tonight in discussing the clause. Labour Members below the Gangway are frequent in their references to the multinationals and their iniquities. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) referred to them this evening.

I recall, before coming to this House, listening six or seven years ago to the American ambassador to OECD addressing an audience in Brussels in which he explained that OECD had looked, through a committee of the member States, at the problem of tax evasion by multinational companies within the OECD countries. He said that those member States had come to the conclusion, through that committee, that there was no need for multinational legislation and that national legislation was perfectly sufficient.

For those who are informed about these matters, there is keen awareness of the fact that teams of executives from the Inland Revenue go out to work with the IRS in Washington on matters relating to multinational companies around the world. It is an irony that the clause under discussion should be attacked by some Labour Members in the terms in which it has been. It is ironic for me to be defending the Government on a matter of tax integrity. I reiterate the words used by the Chief Secretary last night when he quoted the fanciful figure of £200 million. There are times when I think that all tax evasion and all tax avoidance are thought to take place in my constituency. Ultimately someone else pays. I am delighted that, through a clause like this, the system is being tightened up.

Mr. Robert Sheldon

Before replying to the detailed comments and the main arguments of the debate, there were two questions put to me with which I can deal at once. The right hon. Member for Down, South (Mr. Powell) asked about double taxation agreements and how they provided the means of disclosing taxation information to other countries. The basic legislative arrangement that allows this is section 518 of the Taxes Act 1970, which allows the Revenue to disclose information under double taxation agreements.

My right hon. Friend the Member for Battersea, North (Mr. Jay) asked about the directives. The directives could be amended only by a new directive, and legislation would then be needed to implement the new directive. The tears that my right hon. Friend has in this respect are not justified.

My hon. Friend the Member for Swindon (Mr. Stoddart), in a well-researched and at times amusing speech, dealt with the problems that he saw arising from the merging of our tax system into a Community system. This was one of his major worries as I understood it. We are at the final stages of proceedings on a Finance Bill. The problems of achieving a comprehensive approach, even in our own legislation, and the problems that we have in dealing with these matters are nothing by comparison with the task of harmonisation. Even if the political will was immense, the task would be enormous. I do not believe that the worries of my hon. Friend the Member for Swindon or of my hon. Friend the Member for Loughborough (Mr. Cronin) concerned problems which we shall have to face for many years to come, if ever.

The hon. Member for Edinburgh, Pent-lands (Mr. Rifkind) was concerned about what he called legislation by reference. He thought of this as something fairly new. There are a number of precedents for this. There is one which he may recall and which arose as recently as last year. Section 11 of the Finance Act 1977 was, almost identically, a piece of legislation by reference. There is nothing particularly new about this, although I understand the hon. Gentleman's concern about certain other aspects of the legislation.

My hon. Friend the Member for Swindon argued that this is only the beginning of a number of other measures which we shall need to be considering, and which follow on from the clause. He cited value added tax and the directive which has been issued concerning that tax. The United Kingdom has reserved its position on this, and there will be further opportunity to examine the question at a later stage if it proceeds any further.

The right hon. Member for Down, South made his most important comment, I thought, when he expressed the fear that there would be an exchange of information without prior request, and that as a result of this the taxpayer would not know what was happening to information concerning his tax affairs. The right hon. Gentleman saw the possibility of tax files being spread throughout Europe. This point was partly answered by the hon. Member for Pentlands, who pointed out that there is a two-way trade in this—

Mr. Powell

That is confirmation.

Mr. Sheldon

—and that there are advantages coming to us. The right hon. Gentleman referred to what he saw as the position of the United Kingdom taxpayer who might, as a result of this legislation, have to pay more tax in France. The right hon. Gentleman put this forward as something that he dreaded on behalf of his constituents. I must say to those Conservative Members who keep complaining about the high levels of taxation in this country and who compare them with the more modest levels of taxation as they see them in France that it would appear that there is probably more tax to be gained by this country, and, therefore, more value to be obtained by us, if what they say is true, from the implementation of this piece of legislation.

Mr. John Lee (Birmingham, Handsworth)

Will my right hon. Friend go a little further? Is it, then, to be the Government's policy, as a kind of palliative reciprocal gesture, to indent for information about taxpayers whom they suspect to be defaulting abroad, as a sort of sweetener? The right hon. Member for Down, South (Mr. Powell), I think, muttered that it was confirmatory of his objection. It seems to me that that is the case.

Mr. Sheldon

I shall be dealing with these matters later on in my remarks.

Perhaps I may now deal with what the hon. Member for Pentlands said. He was particularly concerned about amendment no. 9. He recognised that amendment no. 8 is largely, although not entirely, met by Government amendment no. 98. Amendment no. 98 makes it clear that the Inland Revenue is not authorised to disclose the information unless it is satisfied that the tax authorities of the other member States are bound by or have undertaken to observe rules of confidentiality with respect to the information which are not less strict than those applying to it in the United Kingdom. Frankly, I believe, as I said in Committee, that this is not necessary, that this is included within the directive and that the natural attitude of those preparing legislation is that they would usually prefer not to have two pieces of legislation saying much the same thing, because essentially when other words are used they are capable of misinterpretation.

My understanding is quite clear that in amendment no. 98 we are doing no more than to repeat the provisions that are in the directive itself. But I believe it is right that we should clarify those points on which there was considerable concern, and amendment no. 98, as I have indicated, was put down for this reason.

Mr. Gould

Is my right hon. Friend arguing that clause 63 incorporates the whole directive? If that is the case, will he explain how clause 63 achieves that?

Mr. Sheldon

Clause 63 implements the directive in the same way as section 11 of last year's Finance Act implemented the recovery of Customs and Excise duties under another directive. We have carried out the same sort of legislative operation.

The hon. Member for Pentlands, in speaking to amendment no. 9, felt that the directive was not sufficiently clear on this matter. He wanted the directive in certain cases to allow the receiving tax authority to go outside these limits if the providing tax authority consented. I see that the hon. Gentleman nods approval, because that is in the directive and it is in his amendment. I am happy to accept that particular amendment. [HON. MEMBERS: "Ah."] As I said before, in the same way as amendment no. 98 meets the same points as were put in the directive, so I believe that amendment no. 9 covers the same points as are also in the directive. If it is the wish of the House that this should be made crystal clear, I am happy to do so. I do not believe that it is necessary. I see certain problems in duplicating legislation, but if that is the wish of the House I am happy to accept that particular view.

The most important points which I should like to deal with were those put by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker). He said that multinationals were very powerful, in many cases more powerful than some of the nation States. They are able to set criteria which, in certain cases, certain countries have to accept or even compete against. The particular problem which my hon. Friend outlined is a problem for those who want to control the extent of tax avoidance and tax evasion, because this is becoming international and companies are already international, both in their operations and in their facilities, in regard to being able to make use of these particular channels.

It is wholly advantageous, wherever we can, to set up such a procedure. It need not be confined to the Community. If a proposal comes before us so that we can have a wider group of nations acting together to implement the kind of regulation about which we are now talking, so that there can be a wider exchange of information dealing with those taxes which are being evaded and avoided, I believe that that is wholly desirable and acceptable. In our debates yesterday, when we were talking about tax avoidance and not tax evasion, we accepted retrospection—something which this House does with a great deal of distaste. We accepted that after a very long debate. Here we have tax evasion, and we are trying to stop it by exchanging information. It is surprising that certain of my hon. Friends and certain hon. Members cannot find it within their power to extend this provision so that we can obtain the information which we believe will be very valuable. Because of that, I believe that we should accept the clause and amendment no. 98.

Mr. Jay

Before my right hon. Friend sits down, can he answer one question? Is the effect of the clause confined to tax payments by multinational companies, or does it also affect individual taxpayers?

Mr. Peter Rees

I almost hesitate to intervene, since the debate has now narrowed into a rather partisan dispute between the Financial Secretary and his right hon. and hon. Friends. It has been an interesting, unusual and wide debate. It has been interesting for Conservative Members to observe the dislike of Labour Members of the EEC and our membership of it, tempered by their detestation of tax avoidance and tax evasion. It will be interesting to see which sentiments come uppermost if the House divides on the clause. The ambivalence was most notable in the speech of the hon. Member for Birmingham, Perry Barr (Mr.

Rooker), whose absence from our debates in Standing Committee we regretted greatly, because he would have made a very special and original contribution.

On this occasion we are considering how far we are required by our obligations under the directive to enact this clause and how far the provisions of the directive oblige us to breach a long established principle of confidentiality between the Inland Revenue and the taxpayer.

10.15 p.m.

I do not think that it was necessary to embark upon a wide debate on our obligations or the consequences of our membership of the EEC. At certain points, Mr. Speaker, there were even speculations about your own future. I am happy to see you here and in good health, and I am sure that we shall rally round you if there should be any question of your being dragged to Tower Hill, or to some equivalent place. I do not think that that arises on the debate on this clause.

Although I am a convinced adherent of our membership of the EEC, I find that the pretext for the enactment of the directive a little specious. I am not persuaded that the practices of tax evasion and tax avoidance extending across the frontiers of member States will be liable to bring about distortion from capital movements and conditions of competition.

I wonder whether the Financial Secretary stood out with sufficient robustness against the other members of the Council of Ministers in defending British interests on this matter. But, again, perhaps this is not the moment to examine too closely the role played by the right hon. Gentleman. He may be under certain pressure from his right hon. and hon. Friends in that regard, and I have no wish to make his position more difficult than it is at present.

However we stand in our regard for the EEC, we are entitled to consider whether the directive is best implemented by this clause. We are entitled to consider whether the clause does not go a little too wide and whether its scope should not be narrowed.

The House will recognise that it is a very long established principle of our fiscal code that what is disclosed by a taxpayer to the Inland Revenue is a matter of complete confidence. With one or two very slight exceptions, which my hon. Friend the Member for Edinburgh, Pentlands (Mr. Rifkind) ventilated and in so doing did the House a great service, there is absolute confidentiality. This is embodied in the oath that members of the Board of Inland Revenue and inspectors of taxes take when they assume office, as the right hon. Member for Down, South (Mr. Powell) pointed out.

It was because the Opposition felt that the clause went a little wide and that in a certain regard information which had been given in confidence to the Inland Revenue might be disclosed for purposes which went beyond mere matters of tax in the countries concerned that in Committee we tabled and debated with some vigour the two amendments which have been reproduced on today's Notice Paper. The Financial Secretary resisted those two amendments bitterly with a wealth of specious argument. Fortunately wiser counsels have prevailed and, having put down amendment no. 98, which reproduces in every particular the provisions of amendment no. 8, we are happy that the right hon. Gentleman has recognised the force of our arguments.

But that did not entirely meet our objections. We feel that if any information is to be passed over, it must be only for the specific purposes of collecting or determining tax in the countries concerned. There is a respectable precedent for that in the double tax conventions which have been negotiated on our behalf by Administrations of various complexions. This point has been amply made in the amendment moved by my hon. Friend the Member for Pentlands and at least this has been accepted, if somewhat grudgingly, by the Financial Secretary. Therefore, perhaps the Financial Secretary has gone far enough to meet the specific fiscal points.

The hon. Member for Swindon (Mr. Stoddart) touched on the wider, more fundamental objection to the clause. He sees it as an advance in surrendering our sovereignty. This was echoed by my hon. Friend the Member for Eastbourne (Mr. Gow), whose views are well known.

I do not believe that in enacting this clause we shall surrender one whit of fiscal sovereignty. It is just a matter of passing over information. By our amendments, we have narrowed the clause and we are happy that the information passed will be strictly confined and obligations will be imposed on the recipient country.

I believe that we are honour bound to discharge the obligations assumed for us—perhaps a little carelessly and heedlessly—by the Financial Secretary. But in his muddling way he is trying to do his best for the country. Therefore, I leave it to his right hon. and hon. Friends to determine whether he has failed in his duty.

National honour and, indeed, perhaps national interest say that we should attempt to discharge the obligations that the Financial Secretary has assumed for us by making us adherents to this directive. Having achieved what we set out to do in amendments nos. 9 and 98, we on this side of the House shall give him modest encouragement in his battles ahead with his hon. Friends.

Mr. Jay

I rise briefly because the Financial Secretary did not answer my question. I wanted to know whether the clause would in effect apply only to the multinationals, about which he talked a lot, or to ordinary individual taxpayers as well. He did not reply and therefore I assume that it applies to the generality of taxpayers and not just to the multinationals, which are a red herring in this debate.

I welcome the amendments moved by both the Government and the Opposition, but I hope that hon. Members will realise that these amendments do not take us very far. They require the Inland Revenue to obtain undertakings from the tax authorities of other countries. This House can put a legal obligation on the Inland Revenue but it cannot put a legal obligation on the tax authorities of other countries to carry out the undertakings that they have given. Therefore, it does not impress me very much.

There is one outstanding point that no one has mentioned yet in the debate. It is still the legal position that the Inland Revenue cannot disclose the particulars of an individual's tax affairs, even to the Chancellor of the Exchequer or Treasury Ministers. Unless my right hon. Friend denies this, I shall assume that it is true. It has always been the case since income tax was first introduced and, as far as I know, it is still the case. Now it is proposed that the Inland Revenue should hand over details of individual taxpayers' affairs to foreign tax authorities when it cannot hand them over to the Chancellor of the Exchequer in this country. I do not think that any case has been made

out for that proposition and therefore I hope that the House will reject it.

Question put, That the amendment be made:

The House divided: Ayes 81, Noes 209.

Mahon, Simon	Rees, Rt Hon Merlyn (Leeds S)	Thomas, Jeffrey (Abertillery)
Mallalieu, J. P. W.	Renton, Rt Hon Sir D. (Hunts)	Thomas, Mike (Newcastle E)
Marshall, Dr Edmund (Goole)	Rifkind, Malcolm	Tinn, James
Marshall, Jim (Leicester S)	Roberts, Albert (Normanton)	Tomlinson, John
Meyer, Sir Anthony	Robertson, George (Hamilton)	Tomney, Frank
Millan, Rt Hon Bruce	Roderick, Caerwyn	Urwin, T. W.
Mills, Peter	Rodgers, Rt Hon William (Stockton)	Varley, Rt Hon Eric G.
Miscampbell, Norman	Rooker, J. W.	Walker, Harold (Doncaster)
Mitchell, R. C. (Soton, Itchen)	Roper, John	Walker, Terry (Kingswood)
Morris, Alfred (Wythenshawe)	Rose, Paul B.	Ward, Michael
Morris, Rt Hon J. (Aberavon)	Ross, Stephen (Isle of Wight)	Watkinson, John
Moyle, Rt. Hon. Roland	Ross, Rt Hon W. (Kilmarnock)	Weetch, Ken
Mulley, Rt Hon Frederick	Rowlands, Ted	Weitzman, David
Murray, Rt Hon Ronald King	Ryman, John	Wellbeloved, James
Newton, Tony	Sandelson, Neville	White, Frank R. (Bury)
Noble, Mike	Scott, Nicholas	White, James (Pollok)
Oakes, Gordon	Sever, John	Whitehead, Phillip
Ogden, Eric	Shaw, Arnold (Ilford South)	Whitlock, William
O'Halloran, Michael	Sheldon, Rt Hon Robert	Willey, Rt Hon Frederick
Orme, Rt Hon Stanley	Shore, Rt Hon Peter	Williams, Rt Hon Alan (Swansea W)
Ovenden, John	Silkin, Rt Hon John (Deptford)	Williams, Rt Hon Shirley (Hertford)
Owen, Rt Hon Dr David	Silkin, Rt Hon S. C. (Dulwich)	Wilson, William (Coventry SE)
Padley, Walter	Smith, Cyril (Rochdale)	Wood, Rt Hon Richard
Palmer, Arthur	Smith, Rt. Hon. John (N Lanarkshire)	Woodall, Alec
Pardoe, John	Snape, Peter	Woof, Robert
Park, George	Stallard, A. W.	Wrigglesworth, Ian
Parker, John	Steel, Rt Hon David	Young, David (Bolton E)
Pendry, Tom	Stewart, Rt Hon M. (Fulham)
Penhaligon, David	Stott, Roger	TELLERS FOR THE NOES:
Phipps, Dr Colin	Strang, Gavin
Prescott, John	Summerskill, Hon Dr Shirley	Mr. Donald Coleman and
Price, William (Rugby)	Taylor, Mrs Ann (Bolton W)	Mr. James Hamilton.
Radice, Giles

Question accordingly negatived.

Amendments made: No. 98, in page 56, line 33, at end insert— '(2) Neither the Commissioners nor an authorised officer shall disclose any information in pursuance of the said Directive unless satisfied that the competent authorities of the other State are bound by, or have undertaken to observe, rules of confidentiality with respect to the information which are not less strict than those applying to it in the United Kingdom.'.—[Mr. Bates.]

No. 9, in page 56, line 33, at end insert— 'Nothing in this section shall permit the Commissioners of Inland Revenue or an authorised officer of those Commissioners to authorise the use of information disclosed by virtue of the said Directive other than for the purposes of taxation or to facilitate legal proceedings for failure to observe the tax laws of the receiving state.'.—[Mr. Peter Rees.]