Clause 41 - Reallocation within group of gain or
Finance Bill
10:45 am
Ms Ruth Kelly (Economic Secretary, HM Treasury; Bolton West, Labour)
Good morning, Mr. Benton. It is a pleasure to have you in the Chair this morning.
I thank the hon. Member for Arundel and South Downs for his comments, which were made in a very constructive way, as usual. He recognised the fact that businesses have been calling for the reforms for some time, that they welcome the changes and that the changes will provide useful flexibility to businesses when restructuring.
The hon. Gentleman very ably explained the purpose of the original de-grouping charge, which is a long-standing anti-avoidance provision. It prevents tax from being lost when a company leaves a group, taking with it an asset that has been transferred to it tax free from another member of the group. The hon. Gentleman gave the example of a special-purpose vehicle being set up and then sold.
The de-grouping charge is triggered if the transferee company leaves the group within six years of the asset transfer. It operates by reference to a six-year period in order to strike an equitable balance between two competing considerations, which I shall outline. I hope that I can reassure the hon. Gentleman that reducing the period to two years is not a sensible manner in which to proceed.
The measure protects the Exchequer against a form of tax avoidance that is not time limited. There is a good case for saying that the provision should not be time limited at all and, as a matter of principle, it is right that groups should not be able to escape tax on gains by transferring assets to companies that then leave the group. In that regard, the tax, which is a tax on gains, is quite different from the stamp duty charge, which is a transaction tax. Therefore, there is a different issue in principle as to how the tax should be collected and the appropriate period in which to do it.
The other competing consideration that we must take into account is that, because companies and groups must maintain records of their transactions in order to comply with the provision, an unreasonable burden would be imposed if there were no time limit. Six years has long been seen as a relatively reasonable compromise. It is consistent with the period over which companies must keep records relating to their tax assessments, and we are not persuaded by the argument that it causes major compliance difficulties.
As the hon. Gentleman said, clause 41 and clause 42, which we shall discuss shortly, make significant changes to the de-grouping charge. Clause 41 will allow a gain or loss arising when a company leaves a group to be reallocated elsewhere within the group, thus creating greater flexibility in offsetting losses and gains. Clause 42 enables gains that arise on business assets to qualify for roll-over relief if the conditions for such relief are otherwise met.
As the hon. Gentleman said, businesses wanted the changes, which were widely consulted on and widely welcomed. They will stop the de-grouping charge being an impediment when companies wish to restructure for commercial reasons and are much more important to business than any potential change to the six-year rule. We are not persuaded that further relaxation of the de-grouping charge is either necessary or desirable, so I urge the Committee not to accept the hon. Gentleman's new clause.