§ Question proposed, That the clause stand part of the Bill.
§ Mr. LetwinThe Committee will be grateful if the Financial Secretary can confirm that the clause will lead to the same treatment for groups as in other indirect taxation legislation, such as that for VAT.
Will the Financial Secretary also say something about clause 35(2)? It states:
Any aggregates levy with which a body corporate is charged in respect of aggregate subjected to commercial exploitation at a time when the body is a member of a group shall be treated for the purposes of this Part as if it were the representative member for that group (instead of that body) which is charged with the levy.If we ignore the words "subjected to commercial exploitation" and substitute them with the word "sold"—which the Financial Secretary unguardedly used earlier and tried to apply to clause 19, even though it does not apply—clause 35(2) would be a standard provision. It would operate in the same way as any other legislation on indirect taxes, and quite rightly so. It would be a straightforward anti-evasion measure that was designed to prevent corporate reorganisations resulting in the evasion of tax.To return to the issue of commercial exploitation, however, I persist in not understanding, among other things, how clause 19 will work from a sheer practical point of view, even if we leave aside the particular problems that would emerge from the case of Mr. Jones, about which I speculated earlier. Clause 35(2) exposes the issue beautifully and, under it, we must ask when commercial exploitation has occurred—and "when" is the 104 all important issue. It is not enough to know whether commercial exploitation occurred; what matters is when it occurred.
Let me consider the matter in the reverse order of logic. I persist in believing that after we have completed the tests in clause 19(3), which determine whether the exploitation is commercial and which have, according to the Minister, to be taken simultaneously, we still have to ask at what moment that exploitation occurred. For that, we must look to clause 19(1), which tells us nothing about when that might have been—perhaps it is not meant to. I remember lecturing about such "if, and only if" clauses at Cambridge. They are jolly good for some logical purposes, but are of no use for temporal purposes.
It is clear that paragraphs (a), (b), (c) and (d) of clause 19(1) are followed by an implicit "or"—indeed, paragraph (c) has an actual "or" after it. If the Minister is using the method of statutory construction in which the "and" in clause 19(3)(d) implies that paragraphs (a), (b), (c), (d) and (e) have to be taken together, then the "or" at the end of clause 19(1)(c) must imply that aggregate is exploited if it comes under paragraphs (a) or (b) or (c) or (d).
Clearly such activities could occur at different times. If the quantity of aggregate is subjected to exploitation when it is removed from a relevant site, that will not necessarily happen at the same moment as the aggregate
becomes subject to an agreement to supply it to any person",as set out in clause 19(1)(b). Neither of those moments is likely to happen at the same time as the aggregate is used for construction purposes, as set out in paragraph (c). That is likely to be later on in the day; for all I know, it may occur at a different time from when the aggregateis mixed"—except in permitted circumstances, on which we need not dwell—with any material or substance other than water",as set out in paragraph (d). So there are three or possibly four moments, any one of which would qualify as exploitation: hence—as the tests in clause 19(3) have hypothetically been simultaneously satisfied—the aggregate is deemed to have been commercially exploited.Clause 35 deals with groups of companies and with evasion. Subsection (2) states:
Any aggregates levy with which a body corporate is charged in respect of aggregate subjected to commercial exploitation at a time when the body is a member of a group".When is that time? Let us suppose that the body was a member of the group when the product was removed from a site falling within subsection (2), under clause 19(1)(a), but was not a member when it became subject to an agreement to supply it, or when it was used for construction, or when it was mixed other than in permitted circumstances and so on. What is the relevant time?There might be a clear explanation of that, and it would be nice to know what it is. We have a series of tests for exploitation, none of which has anything to do with anyone's ordinary understanding of the term. In addition, they are connected with tests of commercial exploitation which have nothing to do with the understanding not just of an ordinary person, but of an extraordinary person—namely, the Minister. He thought that the crucial test is the time of the sale, but it is not.
We are left with a genuine question about the time. My guess is that we do not know the answer and will have to wait and see how the courts deal with the problem, which 105 may differ over the years. I leave that speculation on the table in the hope that I can withdraw it after the Minister has cast light on that interesting question.
§ Mr. TimmsThese are technical provisions. Their purpose, in common with similar measures on other indirect taxes, is to provide for special treatment for groups of companies to protect their revenue and facilitate the administration of the tax.
As the hon. Member for West Dorset (Mr. Letwin) suspected, the clause is based on the arrangements for VAT, but it is not exactly the same because under VAT provisions Customs and Excise can insist on grouping as an anti-avoidance measure. That is not needed in the case of the aggregates levy. This is an entirely voluntary and facilitative arrangement. The clause says that two or more bodies corporate are eligible to be treated as members of the same group for the purposes of the Bill. The fact that the arrangements are not the same as those for VAT may limit the force of the hon. Gentleman's questions.
When we were discussing clause 33, I rightly repeated that the bulk of the provisions are drawn from the arrangements for the landfill tax, which were drawn from those for VAT. I ought to make it absolutely clear that clause 33 itself is based on the arrangements for air passenger duty, which was also introduced by the previous Government.
The hon. Gentleman asked about the timing of commercial exploitation. It is determined by whichever activity is the earliest of those listed in clause 19(1)(a) to (d). Clause 19(7)(a) makes it clear that, once commercial exploitation has taken place, it cannot take place again with the same aggregate.
§ Mr. LetwinThe Financial Secretary is very helpful. He said that we discover in clause 19(7) the deep truth that it is the timing of the first activity that applies. I see nothing in that subsection that serves the purpose, so to give him time to consider the matter, I shall read it out:
For the purposes of this section a quantity of aggregate is mixed with a material or substance in permitted circumstances"—that appears to deal only with subsection (1)(d)—if … the material or substance with which it is mixed consists wholly of a quantity of taxable aggregate that has not previously been subjected to commercial exploitation … and … the mixing takes place on a site which, in a case where it falls within subsection (2) above in relation to any part of the aggregate included in the mixture, so falls in relation to every part of it.I see that that has the effect that mixing, which subsection (1)(d) is concerned with, does not itself constitute a basis for double taxation under the levy if the item in question has previously been taxed under the levy, that is, under paragraphs (a), (b) or (c). I cannot see how subsection (7) in any way tells us which is the relevant date if there is a conflict of dates between subsection (1), paragraphs (a), (b) or (c).Last Thursday morning, in a rather unpleasantly spent hour, I went back and looked through clause 19(4), (5) and (6) for an answer to that question. For a brief, glorious moment, I thought that I might have found the answer in subsection (6), which says:
For the purposes of this section a quantity of aggregate becomes subject to an agreement to supply it to any person"—106 the reference to subsection (1)(b)—except to the extent that it is not separately identifiable at the time when the agreement is entered into … and … to that extent, at the time when it is appropriated to the agreement.However, I then realised that that is limited to telling us about subsection (1)(b); it tells us nothing about the conflict of timing in paragraphs (a), (b) and (c). Secondly, it tells us nothing about timing anyway. It tells us only something about what is and what is not something subject to an agreement to supply.I am bound to say that I cannot see anything in clause 19(4) or (5) that resolves the problem. Clearly, there is nothing in clause 19(1), and the Minister has already told us about clause 19(3), so we are left with clause 19(2), but that tells us exclusively about sites. I am at a loss.
§ Mr. TimmsI might be able to help the hon. Gentleman. I apologise for having given him the wrong reference. I should have referred him to clause 17(2)(c), which covers the point he seeks.
§ Mr. LetwinI am grateful to the Financial Secretary. I may have misunderstood. I understand that clause 17(2)(c) has an effect that relates to the point about not subjecting something to double taxation under the levy. I shall explain shortly why I do not think that it solves the problem arising in respect of clause 19(1)(a), (b) and (c)—conflicts of time in relation to clause 35—although I may be mistaken about that.
Clause 17 states:
For the purposes of this Part any quantity of aggregate is, in relation to any occasion on which it is subjected to commercial exploitation, a quantity of taxable aggregate except to the extent that … it is or derives from any aggregate that has already been subjected to a charge to aggregates levy".That clearly states the excellent principle that something cannot be taxed twice. However, to return to 19(1)(a), (b) and (c), which are the cause of the problem in relation to clause 35, it could be that the quantity of aggregate involved in relation to the company which was, but is not, part of the group—the issue dealt with under clause 35—was at a certain time "removed from a site", at another timesubject to an agreement to supply",and at yet another time "used for construction", but at no time "subjected to a charge". It might not be subjected to a charge for some time to come, beyond any of those events.I do not see how clause 17(2)(c), which appears to be a general prohibition on double taxing—and is admirable as such—handles the problem of the conflict of times that arises from a problem identifying, not the moment at which the thing was subjected to a charge, but the moment at which it became eligible to be subjected to a charge, which is a different matter altogether. I may be wrong about this and I shall be delighted if the Minister can assure me that the principles of statutory construction in some way determine that clause 17(2)(c) answers the question of which of the times set out in clause 19(1)(a), (b) and (c) is relevant for the purpose of grouping or ungrouping.
§ Mr. TimmsI think that it does. I was trying to follow the hon. Gentleman's argument about eligibility for liability for a charge. The point made in clause 19 is that 107 the aggregate becomes liable for levy in the circumstances set out therein, and the impact of clause 17(2)(c) is that it is the first of the "experiences" of a given quantity of aggregate that causes the liability to be incurred. That is the point at which the liability arises.
§ Mr. LetwinI am grateful to the Financial Secretary for saying that. Under Pepper v. Hart, his comments may help the courts by providing some clue of what he is trying to achieve. I cannot see how on earth the wording achieves the effect that he describes, however. I say that not as a lawyer, but as an ordinary human being who is trying to be a legislator. However, he has clearly stated his intention, so I hope that that may guide the courts and provide a perfectly sensible resolution of the issue.
Let us assume that that is the intention—we must hope that it is also the effect—and consider what will happen if the degrouping to which the clause relates does not lead to avoidance of the tax. I think that the Financial Secretary said that the first of paragraphs (a), (b), (c) and (d) to clause 19(1) would apply before the degrouping. A degrouped company may have removed some relevant substance—in the technical terms of the Bill, it will be an aggregate—from the site, but it will have been covered by 19(1)(a) before the degrouping. Even if the company only later becomes subject to the agreement to supply—in layman's terms, the sale will therefore occur later—and the proceeds go to the degrouped organisation, will not the liability nevertheless arise in relation to the group and not the degrouped entity?
I cannot believe that that is what the Financial Secretary intends. I think that I understand the purpose of clause 19(1)(a), which is, incidentally, jolly odd. The provision is intended to try to allow Customs and Excise to exercise the maximum leverage. Indeed, that is the spirit of the aggregates levy. One does not have to prove that the material has been sold or that it has ever been used or commercially exploited in any terms that the Financial Secretary or I would ordinarily use as ordinary human beings. One has to prove only that the stuff was taken off the site and did not appear at another registered site. That is easy to prove; it is about the most objective fact that one can get at. I think that clause 19(1)(a) was drafted to make it as easy as possible for Customs and Excise to ensure that it gets the levy.
That intention gives rise to the oddities that I described in relation to Mr. Jones and his dimension stone cutting, but it also produces oddities in relation to grouping. The construction of the provisions shows that somebody has said, "How can I make dead sure that Customs and Excise can grab the items in question and tax them?" I do not think that that person has asked to a sufficient extent whether it is fair to add such provisions to the mix of criteria for eligibility for the tax. Nor has it been asked whether it would be reasonable to apply the test of clause 19(1)(a) in all the circumstances that may arise.
This is very complicated terrain, and I do not think that either the Financial Secretary or I have reached the bottom of the matter. Notwithstanding his brave remarks and his splendid Pepper v. Hart explanation of his intentions regarding 17(2)(c), I think that we have probably identified a lacuna in terms of the interaction of clause 35 and clause 19(1). My fear is that there are dozens of other lacunae and that my feeble intellect has not revealed them 108 all in the short time that has been allowed to us. I am afraid that all sorts of similar problems will creep out of the woodwork as this horrible tax is applied. I think that the provision was constructed by somebody who was very attentive to the question of how to grab the tax, and that it was drafted far too quickly to enable a proper investigation of whether all the interactions had been identified so as to ensure fair and sensible results in all cases.
§ Mr. TimmsThe hon. Member for West Dorset (Mr. Letwin) flatters me by suggesting that courts will pore over my words in the debate for years—indeed, centuries—to come. However, we are considering obscure circumstances that the courts will not study frequently.
The hon. Gentleman is right about the purpose of the element of clause 19 to which he referred. However, I do not believe that the problem that he fears will arise. If the party has moved the aggregate, it is commercial exploitation and tax is due unless we are dealing with an exemption. If commercial exploitation has occurred, and no tax is due, but a second, taxable commercial exploitation takes place, liability arises at that point.
I shall reflect further on the hon. Gentleman's points. I do not believe that there is a problem, but he is right that the subject is complex. It may therefore be appropriate to reflect further and ascertain whether there is a difficulty. If there is, I shall revert to the subject. I hope and believe that there is no difficulty, but the matter is worth further thought.
§ Question put and agreed to.
§ Clause 35 ordered to stand part of the Bill.
§ Schedule 9 agreed to.