Clause 70
Finance (No. 2) Bill
4:30 pm
Stewart Hosie (Spokesperson (Chancellor of the Exchequer; Home Secretary); Dundee East, Scottish National Party)
I have listened carefully to the Paymaster General. Throughout her speech, she made continual reference to the fact that the provision is designed to tackle specific tax avoidance measures and schemes. However, as yet, I am not wholly convinced of that. She has said repeatedly that there was an HMRC informal procedure in which schemes, deals or trades could be checked to determine whether they were legal when companies were buying losses or whether they would fall foul of the provision. That runs the risk, I think, of companies being in a de facto starting position for almost every significant commercial transaction.
When a company may acquire another that has losses, the starting point will be to go to the HMRC to determine whether it will be a legitimate commercial transaction or whether it will fall foul of the new rules. That will run the risk of adding time delays, additional cost and uncertainty to the process of acquisition. That is important.
We should look at the various forms of purchase and the reasons for them in relation to amendment No.106. Companies may buy to extend their market share; as part of a pre-agreed growth strategy; to extend their geographic reach; to extend the development and production of sales capacity; or to gain new technology, expertise or skills. They may buy as part of a self-financed growth strategy or as part of planned use of investment cash from elsewhere—for example, from investors or one of the markets. They may buy or, indeed sell, as part of a takeover defence strategy or to position themselves after a disposal to take over another company. They may do so to avoid breaching monopoly and other fair trade rules. Companies may buy or sell to maximise shareholder value and fulfil their fiduciary duty. They may buy simply to diversify to protect themselves in the case of a business that had been too narrowly focused for the time being. They may also sell loss-making parts of the business to shore up the remainder or as part of a strategy to focus on core activity. They may sell in order to invest elsewhere.
Those companies that buy particularly to extend their geographic reach or increase turnover may well find that the best value they can achieve is to buy what are, at the moment, loss-making concerns. A judgment might be that the savings could, in the future, be made centrally through enhanced purchasing muscle and so on and so forth. They may feel that the name of the company and the reputation of its brand could turn what was a loss-making purchased company into a profit-making arm. All those decisions are legitimate and valid.
My worry is that the changes will add uncertainty, delay and cost to what should be a normal commercial transaction. I will concentrate on the consequences of the delay and uncertainty. They could be huge. If a company were unable to buy a loss-making concern, to put on muscle or perhaps reduce its value as a takeover defence mechanism and if it had to go to the HMRC to identify in advance if that was a legitimate transaction, it could be extremely worrying. Companies that sell may find that there is no longer a market there if they are trying to divest themselves of a loss-making arm. If there is a delay in doing that and if the cash is not brought in quickly, they may end up carrying costs that they did not anticipate, which may put the rest of the business at risk.
I recognise the Paymaster General’s earlier concerns, and amendment No. 106 seems to suggest that if companies purchased a loss in any of the ways I cited and part of the transaction was defined by the HMRC as legitimate, they could mask a purchase of the loss for the purpose of tax avoidance, which she referred to earlier. I am not convinced that I would vote for the amendment if it were pressed to a vote, but I would like her to address these legitimate concerns. If we are not satisfied today, we may have to return to clause 70 and related clauses at a later stage.