(Except clauses 1,3,7,8,12,20,21,25,67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 27
Finance Bill
9:45 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
I suspect that the Economic Secretary will, in this debate, pray in aid the arguments that he has used previously—that the guidance will be clarified. However, it is worth highlighting some areas of concern.
A quotation from the guidance may suggest the possible lack of clarity for taxpayers in assessing the main purpose. The Economic Secretary said in his remarks on the previous group of amendments that the person conducting a transaction should know its purpose, and that the guidance should help. Paragraph 12 of the guidance states that
“the existence of a tax advantage, such as obtaining a deduction for tax purposes, is not enough in itself to show that the arrangements have a main purpose of obtaining a tax advantage.”
Paragraph 13 gives three different examples, suggesting the complexity of the issue:
“For instance, where there is evidence that a person considered two ways to achieve a commercial objective and chose on commercial grounds to pursue one of them, the fact that there was a beneficial difference in tax treatment for the chosen route would not meet the main purpose test”.
I think that that is very clear. It goes on:
“Where the potential tax treatment was a factor in choosing between alternative arrangements, then it would still be necessary that securing a tax advantage was a main purpose to the arrangements. There may be situations where the tax advantage secured through undertaking one arrangement rather than another is so significant that this indicates that achieving a tax advantage was a main purpose. This is unlikely to be the case where the arrangements chosen do not involve additional, complex or costly steps included solely to secure or enhance a tax advantage.”
As the Economic Secretary suggested in discussing earlier amendments, there could be very simple schemes that would give rise to tax advantage, so the use of the word “complex” is perhaps not helpful in the context. It shows a grey area when taxpayers would have to make judgment in the absence of clearance procedure about whether their transactions falls into that category and what weight should be given in their thought processes to the amount of tax advantage to be gained from choosing to structure one or another route. I am not sure that such a decision is straightforward.
The third example is the polar opposite of the first example and concerns a person who has entered a marketed tax avoidance scheme. That would be taken as an indicator that securing a tax advantage was the main purpose of the arrangements. I can understand that and see exactly where the main purpose test was satisfied. I can see why it was not satisfied in the first example when the tax difference happens to be a by-product of the choice of structuring. However, it is when the tax difference starts to become more significant that the grey area appears and the fact that arrangements might be complex does not necessarily mean that there is an issue. There are some simple tax avoidance schemes.