Proceeds of Crime Bill

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Clause 315

Director's functions: transfers of value

Question proposed, That the clause stand part of the Bill.

Mr. Grieve: Before lunch, we touched on this clause when discussing an amendment that suggested a joint authority between the director and the Board of Inland Revenue. I did not pursue that, although the

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Minister will be aware that I indicated interest in this clause, because it may achieve more recovery than the clauses that relate to income tax.

4.45 pm

I also had an interest in the clause when I read the Bill, because it is noteworthy that inheritance tax functions, along with settlements, are singled out as requiring a clause to themselves, unlike the other functions of the Inland Revenue that the director will be able to discharge. I am thinking of capital gains tax, for example, which is referred to only in passing, and is not covered by a specific clause.

It would be helpful to have some understanding of examples to which the clause is likely to apply. The Minister may be able to help the Committee and tell us about the background issues. If a person comes into possession of a substantial capital asset and refuses to disclose its provenance or origin voluntarily, the merit of the measure is that one can subject that person to Morton's fork, because he must either explain that the asset was the result of criminal activity, in which case the Bill will enable the director to seize it under part 5 provisions, or claim that it was an inheritance or transfer for value. If it was, it should have been taxed if it fell within the seven-year period, and the director would be able to do that.

A safeguard exists for inheritance, in that the transfer is not subject to tax if it falls outside the seven-year period, and a transfer for value might not be subject to capital taxation. Will the provision therefore be easy to evade? Someone could simply put up another person to say that the asset was given as a present. Will the Minister help us? I am no great expert on taxation, and an understanding of how the system will work in practice might be helpful. I have always felt that it is more likely that capital assets rather than income assets could be seized or taxed in this manner. Why do the Government think that the measure would be such an effective tool?

Mr. Ainsworth: The clause allows the director to exercise tax-gathering powers in relation to inheritance tax when there are reasonable grounds to suspect that the proceeds of crime have been passed on by gift or bequest. It is required to complete the director's portfolio of tax powers. It is easy enough to imagine cases in which criminals have given away their proceeds of crime or sought to hide them in a trust or abroad. Alternatively, criminals may simply die before the agency catches up with them. The director must be able to pursue the tax consequences of such dispositions of wealth in addition to the tax liabilities that arise as the wealth accumulates.

The provisions are essentially equivalent to those in clause 311 that involve income tax, capital gains tax and corporation tax. The detail differs, because the taxes involved are structured slightly differently, notably because inheritance tax is charged separately on distinct occasions of transfer—the main one being death—rather than for successive tax years, as is the case for other taxes. The procedural details and the rules for the director's take-up and conduct of cases run parallel to the tax provisions on other Revenue taxes in clause 311, and the same safeguards apply.

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The hon. Gentleman asks whether the powers will be easily circumvented. He shares my prejudice that fixed assets may be more easily targeted than income. The challenge before lunch was to think of instances in which we would be unable to use some of the other powers relating to income, in which the tax power might be used. All that I can think of is cases in which bank accounts are not used all the time and it can be shown that a regular income is received by a known gangster—from prostitution or protection, for example—but we cannot trace the source, let alone come up with the necessary through investigation that would allow us to pursue the person through civil recovery. In some instances, people have a regular income that can be exposed, but the source cannot be proved—like the hon. Gentleman, I believe that that will be difficult to do in many cases.

People who are involved in drug trafficking or other organised crime may, because of the work in which they are involved, be candidates for a relatively low life expectancy. The issue of pursuing their ill-gotten gains beyond the grave may arise more often than it would in the case of Members of Parliament and others who live a more stable life. The clause may be needed far more often than we would imagine if we were thinking about ourselves, because of the dangerous criminal activity in which such people are involved. Therefore, although I accept that possibilities for circumventing the provision exist, as they do for other aspects of the legislation, it is still a necessary tool in the tax-gathering armoury.

Mr. Grieve: The Minister is right. The death rate for drug dealers seems to be rising, and if that continues, inheritances could be sensibly taxed in relation to proceeds of crime. That must be the primary function. I was flagging up an anxiety in that the Bill refers to transfers of value, but unless those transfers take place within seven years before death, they cannot be taxed under inheritance tax provisions. Under other provisions in the Bill they might be seized, but taxing them would be impossible. The provision would apply in the discrete case of the death of a suspected criminal, and would enable at least those assets to be taxed on transfer even if they had a tainted origin—assuming, that is, that they had not been declared in the usual way by the person inheriting them. That might happen, of course, in which case the tax would be collected in the ordinary way.

I understand the merit of the provision, and I am grateful for the opportunity to have had a discussion, because it highlights the limitations of part 6. That is not to say that part 6 should not be included, but we must not exaggerate the possibilities that it opens up. The Minister has always said that the provision was intended more as a last resort. I shall be interested to see how often it is used. I assume that although there will be issues of confidentiality, statistical information will at least be made available to Parliament, as time goes by, on the extent to which the provision has been used, and the amounts that have been taxed as a result.

Mr. Ainsworth: Our intelligence, and the feedback that we have received on the Irish system, is that the taxation provisions are being extensively used.

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Mr. Grieve: I had heard that in conversation with staff at the Irish embassy, as I am interested Irish affairs. I have a layman's approach to this matter—I have no specialist knowledge—and I would therefore be interested to understand how the provisions will operate to tax the assets concerned. As the Minister will be aware, I have scratched my head from time to time about how they will work in reality. I shall have to rely on the expertise of those who advise him.

Question put and agreed to.

Clause 315 ordered to stand part of the Bill.

Clause 316

Director's functions: certain settlements

Question proposed, That the clause stand part of the Bill.

Mr. Hawkins: I can be fairly brief in expressing my concerns about the clause.

In relation to the director's reasonable grounds for suspicion and the service of a notice, would a slightly wider explanation of the settlements concerned be necessary? I appreciate that there is a reference to the Inheritance Tax Act 1984, and, like my hon. Friend the Member for Beaconsfield, I am not an expert on inheritance tax. I once worked as tax clerk in the tax department of Reuters, as a vacation job when I was a student at Oxford, and I picked up little bits of Revenue law as a result. I also had to take a Revenue law paper in my Bar finals. However, I have never practised in Revenue law. If the Minister were to put an explanation on the record, it might help those in another place who may be tax experts. Debates in another place can be assisted if the issue has at least been explored in Committee in this place.

Mr. Ainsworth: Again, let us put the position on the record.

The clause allows the director to exercise inheritance tax powers over criminal proceeds that have been put into a trust—the legal term is ''settlement''. The mainstream inheritance tax powers covered under clause 315 apply when wealth is transferred, and clause 315 consequently requires the director to identify transfers of wealth that he wishes to take under his jurisdiction. Assets in a trust can, exceptionally, be subject to inheritance tax every 10 years simply by virtue of continuing to be held in trust. Therefore, there is a need to supplement clause 315 in the case of trusts, so that the director can say which trusts he wants to get involved with, and for what period. Apart from that technical difference, the basic approach of clause 316, and the safeguards that apply, are essentially the same as for the director's other tax powers.

I hope that that helps the hon. Gentleman in terms of identifying the settlements concerned.

Mr. Hawkins: Yes, it helps me to some extent. The Minister is right to say that, essentially, we are talking about trusts. That is how I read subsection (1). I hope that the provision will work as intended. As my hon. Friend the Member for Beaconsfield said at the end of his remarks on the previous clause, one would wish this clause well, and hope that it assists the director to

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do his or her job. I am slightly puzzled about how it will do so, but that may be because of my lack of familiarity with the way in which inheritance tax operates in relation to settlements. I am content to allow those who are more knowledgeable to consider it in another place.

Clause 316 ordered to stand part of the Bill.

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