Clause 69
Finance (No.2) Bill
11:45 am
Helen Goodman (Bishop Auckland, Labour)
We turn from the breathless excitement of the Olympics to the somewhat more arid territory of anti-avoidance clauses. [Interruption.] I am certain that they will not fail to engage the attention of the hon. Member for Wolverhampton, South-West. Judging from the noises coming from the back, I think that his party hopes that they will engage his attention more favourably than the clauses on the Olympics.
Clause 69 is a brief but important clause. It is essentially a mini general anti-avoidance clause relating particularly to disclosure, and it takes us deep into tax planning and what advisers should and should not disclose to HMRC. It will establish an anti-avoidance rule disallowing any capital losses to companies arising from arrangements whose main purpose is a tax advantage. It is an extension of previous disclosure rules introduced, as the Paymaster General will tell us in due course, in the Finance Act 2004.
The question is one of balance and fairness. Obviously, we deplore the exploitation of different tax rates in order to abuse them. In the Government’s favour, it is perhaps worth knowing that Deloitte welcomes the revised clauses:
“The amendments set out in the revised legislation and HMRC guidance notes provide welcome clarification in certain areas and also amend some of the unintended consequences of the proposed new legislation.”
However—there is always a “however”—one of the difficulties is that the Government have doubled the size of UK tax legislation in eight years. By doing so, they have created more opportunities for avoidance and more gaps that must be plugged, creating in turn yet more opportunities for avoidance. It is worth testing with amendments the complexity and uncertainty of the system, and whether the changes will increase or reduce that complexity and uncertainty.
Amendments Nos. 103 and 104 are essentially probing amendments, although amendment No. 105, which relates to the imposition of a possiblepre-clearance regime, is rather less probing. I shall be interested to hear what the Paymaster General has to say about that. We want to hear her response before deciding whether to press the amendments to a vote.
Amendment No. 103 would introduce two further additions to section 8(2) of the Taxation of Chargeable Gains Act 1992, which the clause will add to and amend. The first part of the amendment seeks to remove capital loss planning from the proposed disclosure rules. The argument runs that if an allowable loss can be used only where obtaining a tax advantage is not the main purpose for creating that tax loss, it is unreasonable for the Government to impose a disclosure regime to prevent the utilisation of such losses, which by their nature must be real economic losses and not paper losses. The amendment would remove capital loss planning from the scope of the disclosure rules by excluding it from the relevant definitions in the statute that introduced those rules.
The second part of the amendment deliberately echoes the wording of the statutory instrument that, from 1 July 2006, will put into effect key changes to the disclosure rules. HMRC’s old regime required that a scheme should be disclosed if it could warrant a premium fee, or if it were confidential in the sense that the tax adviser would not want the idea to be known to the wider tax community. The new regime goes wider: it requires confidentiality in the sense that the adviser would not want the scheme to be known to HMRC.
The statutory instrument requires the promoter—the lawyer, accountant or bank—to disclose the scheme if
“(i) it might reasonably be expected that a promoter would wish the way in which an element of those arrangements secures a tax advantage not to be disclosed to any other promoter; and
(ii) the promoter does not wish to disclose to Her Majesty’s Revenue and Customs the way in which that element secures that advantage”.
The second part of the amendment is intended to bring about a debate on the contents of the statutory instrument, and in particular on what is meant by the word “wish”, and how that wish will be perceived. We also want to consider the reason for not dealing with amendments to the disclosure rules by way of primary legislation, and the reason why Ministers are seeking to impose limits on discussions that are themselves legal and which may have arisen because of deficient drafting of tax legislation—although I am sure that that latter point was covered in the debate on the 2004 Bill.
Amendment No. 104 seeks to clarify the proposed disclosure rules and to enshrine in law an important comment contained in the explanatory notes—the comment that clause 69 will not apply to economic losses. Thankfully, amendment No. 105 is a bit less dry—