Schedule 7 - Accounting practice and related matters
Finance Bill
5:30 pm
Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I shall deal with the issue of 15 years, and the hon. Gentleman can response and I shall answer his questions.
At the time it was thought impractical to contrive an arrangement involving a lease of more than 15 years. That was the advice given to us, and it was the understanding of HMRC, then the Inland Revenue. Unfortunately, experience of the ingenuity of tax avoiders has shown that that was wrong. I could mention the fact that the amendment does not go far enough to achieve its objective, because sub-paragraphs (7) and (8), which the amendment does not affect, makes no sense without sub-paragraphs (5) and (6).
Much more importantly, the amendment would cost the Exchequer £70 million in 2005-06, rising to £120 million in 2009-10. It would mean that tax avoiders could continue to milk the public purse. That cannot be a reasonable proposition. I therefore have no hesitation in saying that if the amendment is not withdrawn I will ask my hon. Friends to vote against it.
I turn now to amendments Nos. 116 to 118. When the Government introduced the rules in 2000, it was not thought that arrangements were likely to exceed 15 years, so the legislation did not apply to arrangements exceeding that period. The avoidance industry latched on to the exemption and we are now seeing cases involving 15 years and a bit, albeit not hugely longer. As the avoiders will apparently go to any lengths to achieve a tax benefit, the Government have proposed measures in this Bill to remove the 15-year rule.
The arrangements to which the rent factoring legislation applies are invariably tax avoidance arrangements, and I could not agree to the diluting of the effect of that legislation. Bona fide commercial arrangements will not be caught because there is an accounting test which keeps them out. There is no need for a motive test here either because the purpose of the motive test is to keep out the bone fide commercial cases. They are already removed on the basis I have described.
The amendments seek to retain the 15-year exemption for rent factoring cases involving assignment of rents unless one of the parties was seeking a tax advantage. Strangely, they do not seek to do the same for cases involving interposed leases. I am not really sure why. Do Opposition Members see some commercial motives in rent assignment arrangements in some cases but view all interposed leased cases as avoidance?
I have tried to explain clearly that rent factoring arrangements caught by the 2000 legislation are invariably tax avoidance. There is therefore no need for a tax motive test, much less one that does only half the job. I reiterate the point that I have made to the hon. Gentleman: bona fide cases will not be caught because they are dealt with within the accounting test which ensures that those arrangements are clear.