Schedule 7
Finance (No. 2) Bill
5:45 pm
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
My hon. Friend’s point leads me to a similar one made by the Institute of Chartered Accountants about setting up a new business. An individual resident in the UK may establish a foreign company to trade outside the UK—possibly in a country with higher corporation tax rates than the UK—and he may decide that it is commercially sound to provide finance or assets to the company on favourable terms from his own resources, because he may consider it worthwhile to subsidise his company to enable it to generate revenue. The institute is concerned that that situation might be caught.
Those situations concern different types of business, but the issue remains how to demonstrate the value of assets that have been transferred overseas, and whether they were transferred at a commercial rate, and in both situations there could be an impact on the business economics. A more equitable approach in both situations may therefore be to consider the commerciality of a transaction as a factor to be taken into account in determining whether it was more than incidentally designed for the purpose of avoiding tax liability.
Subsection (4) of the schedule concerns the imputation of tax advisers’ motives to their clients. It says:
“The intentions and purposes of any person who, whether or not for consideration,—
(a) designs or effects the relevant transactions or any of them, or
(b) provides advice in relation to the relevant transactions or any of them
are to be taken into account in determining the purposes for which those transactions or any of them were effected.”
I am concerned that a tax adviser may decide to structure a particular transaction in a way that minimises tax but the taxpayer might not be aware of that. The clause would mean that taxpayers, even if they did not know, ought to have borne in mind the fact that the tax adviser may have tried to structure the transaction in a particular way.
I suspect that the Paymaster General will say—as she did on an earlier clause when we were debating an amendment tabled by my hon. Friend the Member for Wycombe—that we are talking about legislation targeted at particular schemes that have been marketed to individuals in an aggressive fashion, and cases in which both the taxpayer and the adviser know the exact purpose of the scheme, which is to reduce tax. Could the Paymaster General comment a little further on subsection (4), and say whether she thinks thatthe terms have been drawn so widely that there may be situations in which innocent taxpayers—someone setting up a business overseas, for example—are inadvertently caught by that subsection?