(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92) - Schedule 3
Finance Bill
1:15 pm
Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
I do not think that there were difficulties—certainly not along the lines referred to—when the rate was reduced. When tax is going to go up, opportunity arises, and there is clearly a benefit for people who can organise their affairs artificially so that they can do the transaction now, rather than after the tax increase. The difficulty arises in cases where the base of the tax is expanded, which is what happened at the end of the ’80s when there was quite a lot of forestalling. As I said, some £400 million of revenue could be at risk, and the Committee will accept that we would be negligent if we allowed loopholes to be created, or doors to be opened to avoidance.
Let me pick up the point that the hon. Member for South-West Hertfordshire raised about whether there would be an impact on banks part-owned by the Treasury. We are not aware of any prepayment or similar transactions between the banks now partly in public ownership that could fall within the scope of this legislation, nor is there reason to think that such transactions are likely. His point about connectedness might arise, but there is no transaction that is likely to cause any difficulty and, as I said, if there were we could use paragraph 15 of the schedule to deal with it.
Amendments 5 and 6 would limit the connected parties test in certain circumstances. It would not be difficult to set up prepayment arrangements, particularly between connected parties, to enable large amounts of transactions to escape the effect of the VAT rise. When parties are connected, it is not clear in which circumstances there would be a need for prepayments as opposed to any other method of financing that they might arrange between themselves, so the legislation needs to provide a robust defence against such artificial arrangements. I suggest that the amendments would weaken the protection of the connected parties test and could open the door to avoidance.
Amendment 5 would introduce an intention test into the legislation. I understand the reason and the fairness argument for that, but in practice it would be very difficult to assess intention. For obvious reasons, we cannot be sure that tax avoiders would be wholly frank about their intention if the success of some tax avoidance depended on it. Introducing such a test would create uncertainty for taxpayers and for Her Majesty’s Revenue and Customs, and the circumstances for which the amendment is designed are unlikely to be common. I hope that the Committee accepts that it would not make sense to introduce uncertainty when the number of transactions is small. In any case, as I have said, the schedule allows transactions to be excluded by order if we come across transactions that would be effective.
Amendment 7, as the hon. Gentleman has set out, prevents retrospective orders from extending the scope of the measure. I think that I can give him the reassurance that he seeks, making the amendment unnecessary. Paragraph 10 does not permit retrospection—it would not be possible. To have the power to amend legislation by order retrospectively, the primary legislation needs to give a power of retrospection which the paragraph does not explicitly give. We do not intend to apply such orders retrospectively. Perhaps the fact that I have said that might help the hon. Gentleman.
I hope that I have covered the issues raised by the three amendments, and that I have persuaded the hon. Gentleman that he can safely withdraw the amendments.