Schedule 1
Finance (No. 2) Bill
11:45 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
I am in favour of proper implementation of the ECJ judgment in the Marks & Spencer case. I will come to two issues that are connected with that matter in the next group of amendments. The schedule refers to relevant arrangements to enable companies to claim group relief. Anyone setting up a group structure from scratch and determining its structure would think about how to ensure that if losses do arise—no company sets out to make losses—they can flow through to UK tax computation and be offset against UK tax and profits. That is legitimate planning.
However, I am concerned about where the line is drawn between legitimate planning and the actions that people might take in order to make losses eligible for UK tax relief at a later date. There might be some tax structuring at the start of a new business opportunity, but people may find that the arrangements they make further on in the process, especially their choices about changes to group structures, for example, could make some losses eligible for relief in the UK, depending on their actions.
To help the hon. Gentleman, I give the example of a minority shareholder in an overseas company in which the UK parent owns 60 per cent. and a minority shareholder owns 40 per cent. If the minority shareholder exercises a put option, and requires the UK parent to buy those shares, which puts it over the 75 per cent. threshold for claiming group relief, the arrangements have not actually been made at the behest of the UK parent. If that happened as a consequence of actions by the minority shareholder, those actions will act as a trigger and enable the UK parent to claim group relief on the losses, assuming that there is no other way of obtaining relief in the country where the overseas subsidiary is located. However, because it is not their action or at the parent’s direction, they have not entered into the relevant arrangements for the purposes of securing group relief.
We have heard of cases in which the parent company may deliberately buy out the minority shareholding and decide to close down the operation, and in doing so goes over the 75 per cent. threshold, which in principle would render those overseas losses eligible for group relief in the UK. If that is the case and the parent actively seeks to acquire that minority interest, does that fall within the remit of the anti-avoidance provisions in the schedule?
We are trying to understand what actions a company can legitimately take that will trigger group relief which will not be picked up by the anti-avoidance claims. Is structuring from the outset okay? Will transactions later on fall inside or outside the anti-avoidance regulations? That is not clear, as the wording in the schedule is quite broad. People have a legitimate interest in understanding where the Government and HMRC will draw the line when considering what is permissible and what is not in relation to the structures of group companies.