Clause 70
Finance (No.2) Bill
12:45 pm
Helen Goodman (Bishop Auckland, Labour)
The clause bundles together a series of anti-avoidance proposals in order to amend the Taxation and Chargeable Gains Act 1992. Before I go through the amendments in detail, I want to return to the point about the clarity of the legislation. In the debate on the amendments to clause 69, I quoted Deloitte’s general welcome for the provision. However, it is worth noting that the firm Norton Rose recognises greater ambiguity and difficulty for business in these arrangements than the Paymaster General allows. It said:
“The guidance notes state that the provisions do not apply where there is a genuine commercial transaction that gives rise to a real commercial loss as a result of a real commercial disposal. However, debate is likely to continue as to the meaning of these phrases. HMRC have rejected calls for a clearance procedure and have also rejected requests for mitigation of this rule in circumstances where companies seek to recognise capital losses on assets before a real commercial disposal takes place."
The context of amendment No. 106 is that proposed new section 184A in clause 70 will place restrictions on companies buying other companies with losses. New section 184B will place restrictions on companies buying other companies with gains. The crucial section, which relates to the previous two, is new section 184D which defines "tax advantage" in relation to the other sections.
Amendment No. 106 is a probing amendment, which would insert a new section 184DA in order to place in law a definition of the main purpose of a company when that main purpose is to avoid paying tax. There is currently no interpretation of main purpose within UK tax statute. The definition in the amendment is a case-law definition given as obiter dicta. In case any members of the Committee do not know what that is, I looked it up, although not through the medium ofMrs. Gauke, and found that obiter dicta are the remarks of a judge which are not necessary to reaching a decision, but are made as comments, illustrations or thoughts. The hon. Member for Wolverhampton, South-West knew that already, but other Committee members did not necessarily know. Some of them might have.
Amendment No. 107 deals with sections 176 and 177 of the 1992 Act, which disallow capital losses where there is tax planning to generate an unreasonable loss. Following the changes to section 8 of the 1992 Act approved in clause 69, there is arguably no reason for section 177 to remain in existence for corporate bodies. The amendment seeks to establish whether the Treasury intends to duplicate a piece of legislation unnecessarily.
Amendment No. 108 would remove the whole of clause 70(5)(a) and (b). The argument supporting it relates again to the unnecessary duplication of legislation and runs as follows. The measures relate to life assurance businesses. Specific rules prevent life assurance companies from deferring capital gains on their holdings of equities by holding them via a captive collective investment vehicle such as a unit trust. The rules work by deeming the assurance company to have sold all such unit trusts at the end of each accounting period. The net amount of capital gains or allowable losses arising from the total deemed disposals is spread for tax purposes over seven accounting periods, including the current one. Typically, a net loss can be carried back against spread gains arising in the previous six periods.
Subsections (8A) to (8I) of section 213 of the 1992 Act were introduced to deal with an anomaly. Capital gains and losses are particular to the company in which they arise. Therefore, if life assurance business was transferred to a new company, provisions allowed net spread amounts not yet taxed to transfer with the business. However, if the stock market then plummeted, the transferee could not carry back the losses against gains already taxed to the transferor, even though the gains and losses arose to the same policyholders.
Subsections (8A) to (8I) of section 213 were introduced to allow a two-year carry-back by election where the transferor and transferee were in the same group. Unfortunately, in the opinion of some, subsections (8H) and (8I) were included so that the election could be reduced by the effect of the pre-entry gain rules. It was argued that that was unnecessary, as the rules required that the transferee did not carry on long-term business before the transfer. Hence, gains and losses must relate to the same policyholders.
Clause 70 seeks to introduce a new restriction following the abolition of the pre-entry gain rules. General anti-avoidance rules now apply to the creation of capital losses, and specific anti-avoidance rules apply to the purchase and sale of companies for their capital losses or gains. Also, rules exist to prevent shareholders from using their losses against policyholder gains and vice versa. It is argued that given those measures, there is no need for subsections (8A) to (8I) to remain in force.
Amendments Nos. 109 and 110 propose to delete everything between line 25 of page 60 to the end of line 1 of page 61. It is argued that the measures that would be deleted are retrospective, and that UK tax law should not usually be retrospective. I look forward to the Paymaster General’s response on those points.