Clause 70
Finance (No. 2) Bill
4:30 pm
Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
Good afternoon, Sir John, and welcome to this afternoon’s sitting. When we broke for lunch, I was responding to amendments Nos. 106 to 110, which were tabled by the hon. Member for Wycombe (Mr. Goodman). His points on amendment No. 107 related to section 176 of the Taxation of Chargeable Gains Act 1992, which covers some of the same ground as clause 69 in that it could be used to combat avoidance involving the artificial creation of losses. Section 176’s remit, however, is wider than just avoidance.
Section 176 covers purely commercial situations that would otherwise produce an unfair result for tax purposes. For example, if a company pays a distribution out of pre-acquisition profits prior to being sold, section 176 ensures that the correct amount of capital loss is recognised on the sale. To pay the dividend might well be a normal commercial judgment, but it is still appropriate to apply section 176. It has no purposive anti-avoidance test; rather, it is an objective test that is well understood and respected.
Like amendment No. 107, amendment No. 108 has nothing to do with the rest of the clause but touches on something else. It does not touch on the targeted anti-avoidance rules, but would remove a rule that applies only to life insurance companies with holdings in unit trusts and open-ended investment companies. Because they are charged tax on movements in the value of such holdings and not just on disposals, there is a unique relieving rule that allows them to carry back losses to the two previous periods. No other type of company is allowed to carry back capital losses. When an insurance company changes group, the current law prevents carry-back except where the losses arose on the assets that the company held before joining the new group. That is in line with the general thrust of the loss and gain buying rules.
The Bill will update legislative references and provide a minor relaxation of the restrictions on carry-back of losses. I am not sure what prompted amendment No. 108. The hon. Member for Wycombe said that it was probing and not directly relevant. On that basis, I do not accept it. However, because the point that he raises could none the less be advanced, I shall say to him that Her Majesty’s Revenue and Customs has recently issued a consultation document on taxation of life insurance companies. That is the right place to raise such issues regarding future intentions. I do not think that his point is necessarily relevant here.
Amendment No. 110 is strange. It would remove a transitional rule included in the Bill as a result of representations from companies and their advisers. It is strange to want to remove that. Subsections (9) and (10) are intended to provide additional relief for companies that have undertaken certain transactions prior to the pre-Budget report that do not involve gain or loss buying but that could have been subject to restrictions on their use of capital losses. They have been included because companies asked that the draft legislation include improved targeting in that specific area. The Government recognised that the original draft could be improved and responded accordingly. I cannot see any good reason why the amendment should stand, although I hope that the hon. Gentleman will accept my explanation. In effect, amendmentNo. 109 would remove from the scope of the clause any tax-driven purchase of a company that occurred before the pre-Budget report. If we were to accept that amendment, the subsection that it would remove would be unnecessary. However, as I do not believe that the amendment would have that effect, amendmentNo. 110 should also be rejected.
I hope the hon. Gentleman will accept those explanations of how the clause works and why this large group of amendments would not be necessary.