§ Mr. Peter Reesasked the Chancellor of the Exchequer if he will explain the practice to be adopted by the Inland Revenue in relation to the application of Sections 460 and following of the Income and Corporation Taxes Act 1970 to liquidations, in view of the arguments advanced by the Inland Revenue in the High Court in the case just concluded of Commissioners of Inland Revenue versus Joiner and the assurance given in 1960 by the then Attorney-General 160W that the section would not be applied to ordinary liquidations.
§ Mr. NottOne of the arguments raised by the Crown in the case to which my hon. Friend refers was that a distribution of assets to a shareholder in a winding-up is itself a transaction in securities and hence may be sufficient to invoke the application of Section 460 of the Taxes Act. The High Court did not express any opinion on the argument, deciding for the Crown on another ground. The question of possible appeal is still open.
Until such time as there is a decision of the court giving further guidance on this issue, the Inland Revenue is advised on the basis of recent decisions that for the purposes of Section 460 a distribution to a shareholder in a liquidation is a transaction in securities. It does not propose any change of practice in relation to an ordinary liquidation, that is to say the bona fide winding-up of a business as a discrete entity, whether the business with its concomitant goodwill then comes to an end or is taken over by some other concern which is under substantially different control. On the other hand the Inland Revenue would not regard as "ordinary" a liquidation which is part of a scheme of reconstruction which enables the old business to be carried on as before with substantially the same shareholders, directly or indirectly, in control. Section 460 does not of course apply where a taxpayer can show that the transaction or transactions were carried out for bona fide commercial reasons or in the ordinary course of making or managing investments and that the main object or one of the main objects was not the obtaining of a tax advantage.
Any person who wishes to know whether the provisions of Section 460 might be applied to any liquidation which he is proposing to put into effect may seek a clearance from the Inland Revenue under Section 464.