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Extension Of Section 485 Of Taxes Act In Relation To Petroleum Companies

Volume 888: debated on Wednesday 19 March 1975

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I beg to move Amendment No. 216, in page 55, line 20, leave out consisting of petroleum or petroleum products '.

This amendment is designed to ensure that an important part of the strengthened transfer pricing rules applied to oil companies by Schedule 9 is not confined to their transactions in oil and oil products but extends to other transactions, such as tanker freights. The purpose of the schedule is to strengthen the existing transfer pricing rules, in Section 485 of the Taxes Act, primarily in respect of transactions in oil produced outside this country. It is also intended to extend to other transactions between oil companies and their associates, mainly because such transactions could be used, by means of artificial transfer prices, to diminish oil profits. Among other things it extends to charges for transport and other services in respect of United Kingdom oil production, although not to the transfer price of the oil itself, which is governed by Clause 12 as regards corporation tax. We feel this to be an essential part of the Bill.

The Government seem to be pulling a fast one here by slipping in this amendment. It substantially widens the effect of Clause 17 and Schedule 9. It is almost taking advantage of an industry which is being dealt with here in a special fiscal way. When the Bill was originally produced there was, with the full support of the Opposition, a recognition of the need to close the loopholes which had allowed big artificial losses to build up by reason of the posted price system. This system, as it operates in the OPEC countries and other oil-producing countries, gave rise to losses which were allowed to build up because the rules about artificial transfer prices did not apply to transfers which took place between two resident companies.

As we know and as has been spelled out in the Select Committee's Report, for a number of years under both Labour and Conservative Governments, that gave rise to the substantial losses which resulted in oil profits in this country not being properly taxed. Indeed, my right hon. Friend the former Member for Altrincham and Sale, now Lord Barber, as Chancellor of the Exchequer accepted in full the recommendation of the Select Committee. The effect of the amendment is to extend this matter far beyond the Select Committee's proposal and anything which was accepted by my right hon. Friend. This cannot arise from the posted price system.

The hon. Gentleman said that this proposal referred to tanker charters and other transactions of that nature. I suggest that he is now applying to oil companies tax rules which could equally apply to many other companies. If it is right to extend Section 485 to charter parties and things of that kind for oil companies, why is it not equally right to extend those rules to other shipping companies? If it is right to extend it to agreements for the sale or hire of other goods and the provision of services for oil companies, why it is not equally right to extend it to, let us say, mining, plantation, or other companies which might be expected to operate substantially overseas?

This seems to be a dangerouse thin end of a wedge. We have all along accepted that because of the nature of the oil business it was right to deal with the oil trade in a particular way. This proposal goes far wider than that. By removing the impact of the paragraph, as originally drafted, from the sale of petroleum or petroleum products, the Government have extended to the rest of the activities of oil companies, in a dangerouse way, the special rules relating to the oil trade. This does not seem to be right.

To slip this in—an amendment that looks like a minor one, but which has a major effect—in the last few days before the Bill leaves this House and goes to another place where it cannot be amended, is sharp practice. Were the hour not so late, we would want to express profound displeasure in the Lobbies, not so much on the substance of the amendment, though we do not like it, as on the manner in which it has been introduced. The Government should not treat legislation of this kind in this manner. This is not a mere reinforcing provision to make sure that the original proposal has the effect that was intended. This is extending the operation of Clause 17 and Schedule 8 far wider than anybody anticipated.

Was this extension discussed with the industry? Was any proposal made to the industry? Were its views sought?

If not, why not? While the hon. Gentleman gathers his thoughts for a reply, may I remind him of the question: was there any consultation with the oil industry, or with any of the firms engaged in it—I realise that they do not have any form of trade association in this country—whether the amendment should be made?

We serve notice that if the Government attempt to repeat this kind of thing we shall treat the mater with great seriousness. This is a nasty, slippery piece of fiscal legislation, which smacks of sharp practice by Treasury Ministers and the Inland Revenue. I hope that they will not do it again.

10.30 p.m.

The right hon. Gentleman talks about the thin end of the wedge. I know that he is very much alive to anything which seeks to tax the oil companies more heavily than he would wish them taxed. The whole House has come to recognise that he is a constant advocate on their behalf. There are times, however, when the interests of the community as a whole need to be taken into account, and when the problems of an important industry which we are anxious to encourage have to be weighed with the problems of the country. This is a valuable and useful provision.

As for sharp practice, that is not decided by the Government. We did not decide when we produced the Bill that the clauses would so fit that this would be one of the last amendments to be dealt with. It just happens that transfer pricing comes at this stage.

The Minister misunderstands me. Of course I do not complain about the place in which this provision comes in the Bill, but this amendment, totally unrelated to the rest of the amendments, was put down only last Thursday. I ask again whether any consultation was had with the industry on this matter.

I shall answer the question, if the hon. Gentleman will contain himself. The right hon. Gentleman's complaint was that this had come late in the Bill and that there would be no possibility of a Division. We know why there is no such possibility—because his troops have gone home. But he should not feel aggrieved with the Government because he has sent his troops home before we had reached an amendment on which he now wishes that he could force a Division. That is not our fault; perhaps the matter should be discussed with the Opposition Chief Whip.

This provision fits closely into the Bill, because the oil industry uniquely among such industries, provides its own transport as part of its methods of operation. It deals in transport to an extent unusual in other industries, so it is natural to make this kind of change. I believe that the tests are eminently fair for determining the transfer price for tax. If multinational groups are already using transfer prices which are fair to the Revenue, they have nothing to fear from the schedule; it will fit in with their existing practice.

Although the amendment will provide that paragraph 6 will apply to all goods and services, it will do so only in relation to oil companies—that is, the companies carrying on their activities under paragraph 2 and then only if the transactions are such that their pricing affects the United Kingdom revenue. This is right. The right hon. Gentleman's criticism was rather extreme, and I hope that the amendment will be accepted.

Amendment agreed to.

I beg to move Amendment No. 142, in page 55, line 42, after sale ', insert ' first delivery '.

I understand that it will be convenient to discuss at the same time the following amendments:

Government Amendments Nos. 217 and 218.

No. 143, in page 55, line 42, after ' delivered ', insert

'more than twelve months after the said date and '.

No. 144, in page 55, line 46, leave out from ' made ' to end of line 47 and insert

'on the date of each such delivery '.

Government Amendments Nos. 219 and 220.

We tabled this amendment because we felt it necessary to take account of the print of the single contract where decries are spread over 12 months or more. Since our amendment was tabled a number of other amendments have been tabled by the Government.

So far as I can see perhaps the Minister of State will confirm this—the Government amendments entirely take our point and meet our objection, for which we are extremely grateful. However, it would be helpful if the hon. Gentleman would briefly explain exactly how the Government amendments will operate.

The question of the period of valuation of oil was discussed at considerable length on previous amendments and we dealt with the way in which we provide for the monthly valuation of oil at the mid-point period. This was a reasonable balance between the theoretical correctness of valuing each transfer of oil at the date of transfer and the problems which we had before the changes were introduced. It provides a fair, reasonable and balanced compromise, and as it was accepted on the previous amendments I hope that it will be accepted on this amendment.

Amendment negatived.

Amendments made. 217, in page 55, line 42, after sale ', insert (i)

No. 218, in page 55, line 42, leave out from ' delivered ' to ' would ' in line 43 and insert ' within that time '.

No. 219, in page 55, leave out line 47 and insert:

'date of the sale ; and

(ii) that such part of the property not so delivered as is delivered in any calendar month would have fetched a price equal to that which it might have been expected to fetch if sold under a contract for the sale of that part and of no other property, being a contract made at the material time in that month '.

No. 220, in page 56, line 1, leave out sub-paragraph (2) and insert—

'(2) In this paragraph "material time" and" calendar month "have the meaning given by paragraph 3(2) of Schedule 3 to this Act '. —[ Dell

Motion made, and Question proposed. That the Bill be now read the Third time.

10.38 p.m.

:It is not often that one is present at the introduction of taxation legislation which levies taxes likely to bring in thousands of millions of pounds. The taxation legislation for which normally I have had responsibility or with which I was concerned in opposition related to taxes whose amounts were relatively small and which at best were likely to produce hundreds of millions of pounds.

The way in which this Bill was prepared was wholly right. My right hon. Friend, in devising it, proceeded on the basis that it was important to achieve early legislation and to have the widest possible consultation. Anybody with experience of the way in which the Treasury operates will know that it was a unique innovation, whereby we had business men wending their way through the corridors of the Treasury in numbers never before seen in order to make representations eagerly awaited by the Government who wanted to learn about the oil industry in a way of which, I am afraid, the Opposition never quite got the measure.

I know that the right hon. Member for Wanstead and Woodford (Mr. Jenkin) entertained the oil industry at great length. He was too readily persuaded by the arguments of people in that industry. Certainly never a breath of criticism of the oil companies ever crossed his lips in Committee or in this Chamber. When one considers that it is from their work that the revenue will flow, one would have expected at least a certain balance, at least so far, and that on occasion he might have conceded that they had gone further than the facts warranted. One would have expected that the people of this country and their Revenue ought to have had at least an equal time in his consideration occasionally. I felt, as did the bulk of the Committee, that the right hon. Gentleman had not had that degree of balance which I should have thought was an essential prerequisite of any Opposition spokesman speaking on a matter as important as this.

We have seen the fundamentals of the Bill retained unimpaired—the questions of the ring fence, the prior charge and the field-by-field provisions. We have had the announcement of the rate and the take of the Government at a level of 70 per cent. We have a very workable scheme, which is understood by the oil industry and which gives the industry a fair share of the proceeds to make sure not only that it receives the fruits of equity but that it continues and increases its investment in the North Sea.

When we come to survey this legislation at some stage hence we shall see that we have devised a scheme which is of benefit to all the participants in this most important industry.

10.42 p.m.

At this hour I do not intend to speak at length, although I must say that the Minister of State has risked provoking myself and my hon. Friends to reply at length to what was a monstrously unfair and inaccurate attack.

The Minister should bear in mind that the Opposition, even when we were in Government, accepted without question one of the principle features of the Bill—namely, the ring fence, the removal of the artificial losses. On Second Reading I accepted without question the ring fence. We have accepted without question the need for additional taxation on the oil industry. To say that the Opposition did not give sufficient regard to the interests of the British taxpayer is sheer moonshine.

What we have said all along is that the Government have chosen the wrong vehicle. In choosing a flat rate, prior charge, field-by-field tax, they chose an instrument peculiarly unsuited to the object they were setting out to achieve. The measure of that lack of suitability is the massive tally of amendments which we have accepted in Committee and on Report. Although those amendments have not changed the structure of the Bill they have changed its substance beyond all recognition.

The Minister of State said that the scheme of the Bill remains unimpaired. His use of the word "unimpaired" was one of the most remarkable and inaccurate statements which the House has heard—at any rate since the Prime Minister's statement yesterday.

The amendment of this legislation has been achieved partly—I concede this at once—by the extent to which the Ministers and their advisers have listened to the words of warning and the advice from the industry. I found it slightly surprising that if we moved an amendment which reflected a representation that the Government had had from the industry, we were accused of being merely the industry's mouthpiece. On the other hand, if we moved an amendment which had not been suggested to the Government by the industry, the immediate reaction of Ministers was that it was an amendment to which they needed to pay no attention at all because it had not been requested by the industry. The Government have tried to have it both ways in this respect, as we have seen several times this evening. The Bill has also been amended by the enduring devotions of my hon. Friends who, in Committee and today, on Report, have laboured long and with great expertise, and I thank them very much for their support.

Ministers may not realise it, but the Opposition team on the Bill has had a remarkable record, perhaps stimulated by our success in this Bill. My hon. Friend the Member for New Forest (Mr. McNair-Wilson) and myself, who, perhaps, at one stage risked having our heads rolling, found ourselves confirmed in our posts. My hon. Friend the Member for Ross and Cromarty (Mr. Gray) has been elevated to the Front Bench, as has my hon. Friend the Member for Barkston Ash (Mr. Alison), and we are grateful to him that he has been with us to finish the Bill. My hon. Friend the Member for Croydon, Central (Mr. Moore) who, alas, has been unable to be with us on Report, has been made a vice-chairman of the Conservative Party. For a small, hardworking and devoted team that is a pretty remarkable record.

We are not happy with the Bill, but we do not intend to vote against Third Reading because, broadly, it enshrines purposes with which the Opposition have a good deal of sympathy. But we believe the Government still to be taking grave risks with Britain's most vital natural asset, namely, our discoveries of offshore oil. I hope that my fears are ill-founded. I hope that the Government are right when they claim that the Bill provides a fiscal framework within which the oil industry can continue to do its work in exploration and development and in bringing these valuable discoveries of oil and gas ashore. I say that I hope that the Government are right, but I fear that they may not be. The Opposition will be watching with critical care and. considerable anxiety the developments in thiss industry over the months and years to come.

If the Government have got it wrong, and if they have overloaded the industry with taxation so that it is persuaded, over the years, to move off to more favourable climes, the Government will bear a very heavy responsibility, which the electorate will visit upon them, I hope, with condign effect. We do not oppose the Third Reading. We have vastly improved the Bill. It leaves us to go to the other place in an enormously improved form, and I think that we on the Opposition side are entitled to some credit for that.

Ministers have listened carefully and conscientiously to what we have said. There were times in Committee when we felt that to go on pressing the amendments amounted to a hardship on. Ministers.

I end on this note: there is now among some extremely able and skilled advisers from the industry and elsewhere a well-established and flourishing society for the prevention of cruelty to Sheldons. We hope that the Minister of State will not feel that he has to make use of its services in the future. We leave the Bill with some regret. I have become rather fond of it. However, we hope it will achieve its purpose.

10.48 p.m.

I fear that I have to delay the House a little longer. I thank my hon. Friend the Minister of State for bearing the burden that was placed upon him and which he carried in taking this Bill so substantially through both Committee and Report stages. I am glad that at the end of the day the right hon. Member for Wanstead and Woodford (Mr. Jenkin) does not intend to recommend his hon. Friends to vote against the Bill, but his attitude to it seems a little odd. Apparently, it is a Bill which might still ruin our offshore industry, which might bring this country to disaster, and yet—

On a point of order, Mr. Deputy Speaker. I thought that we were about to hear a debate on the social services. We are most intrigued to hear the Paymaster-General weighing in, because there are most important points about the social services to be dealt with. I hope that the message which has just arrived mea- that these proceedings can be brous to an end fairly soon.

I am grateful to the right hon. Gentleman for that intervention, and for the circumstances that make it possible for me to bring my remarks to a close.

I hope that the Opposition do not seriously consider that the Bill will do such damage, or even that it has the potential to do it. If they do, I cannot imagine why they should have decided not to vote against it, even at this late hour on Third Reading.

The Bill is an important addition to our taxation statutes. It will bring considerable revenue to the Exchequer.

If the right hon. Gentleman would like to listen to my Adjournment debate, as he is a Treasury Minister and I shall be asking for money to be spent, I shall be happy to listen to him.

I should be delighted to listen to the right hon. Gentleman's Adjournment debate on another occasion. I welcome the right hon. Gentleman to the back benches and the opportunity to have Adjournment debates, which I am sure are very important.

I see that my hon. Friend the Minister of State, Department of Health and Social Security, has arrived. He will listen to the Adjournment debate even more eagerly than I would have.

I ask the House to give the Bill its Third Reading.

Question put and agreed to.

Bill accordingly read the Third time and passed.