Schedule 7 - Accounting practice and related matters
Finance Bill
6:45 pm
Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
The amendment would change the comparator when it is necessary to determine whether the interest rate that a company obtains on its interest in one of the avoidance cases is a commercial rate. I appreciate the difficulties of tabling and ensuring that amendments are correct—I have said this before, so there is no implied criticism—but on this occasion the amendment is fundamentally flawed in a number of ways.
At the moment the comparison is made with what the rate would be if a company deposited the same amount of money as it put into the avoidance scheme—in other words, if it did an equivalent commercial transaction to earn interest. The amendment makes a comparison with the rate that a company would have achieved if it had invested in a debt asset comparable with the shares that it had acquired as part of the avoidance scheme. That, however, is not so much a comparison as looking at the possibilities of a comparison. The nature of the avoidance schemes is that they tend to deal with what might be considered funny shares.
There are no comparables. It seems that the hon. Gentleman’s amendment says “Compare it with another avoidance scheme, assuming that they might have got away with it.” That is not acceptable. Furthermore, as hon. Members will be aware, the interest rate that can be earned depends on the amounts of money to be invested: the more money that is available, the more bargaining power the investor has. The amendments say nothing about how much is invested in the comparable debt asset. Apart from the drafting of the amendment being flawed, the way it would deal with what is comparable is flawed. It cannot be right to allow a company to select another avoidance scheme, but that is what the amendment would do. That is clear enough in the arrangements identified in terms of the interest that would accrue. The hon. Gentleman’s amendment is unnecessary and undesirable.