Schedule 16
Finance Bill
5:45 pm
Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
I am, again, grateful for your clarification.
Schedule 16 makes consequential changes arising from what we have just agreed to the controlled foreign company rules designed to stop UK groups from artificially diverting profits to low-tax territories in order to avoid paying UK tax on those profits. The controlled foreign company rules counter this by charging UK tax on the diverted profits. The controlled foreign company legislation is subject to a series of exemptions, two of which are the subject of this schedule. Those are, first, the acceptable distribution policy and, secondly, exemptions for holding companies. Following the introduction of an exemption regime for foreign dividends, these exemptions are no longer appropriate and are removed.
Amendment 155 is tabled to repeal clause 57(6) of this Bill with effect for accounting periods of controlled foreign companies beginning on or after 1 July 2009. This clause contains double taxation provisions that come into effect for dividends paid on or after 1 April 2008, but subsection (6) will no longer be needed from 1 July 2009 as the ADP exemption is repealed on that day as a consequence of the introduction of dividend exemption.
Amendment 156 is tabled to remove a mismatch between the controlled foreign company and double taxation rules to ensure that there is consistent treatment of profits arising before and after commencement. Although scope for abuse does exist, this mismatch is more likely to produce the wrong result and therefore needs to be corrected. It reflects an omission that unfortunately did not come to light during earlier consultation. On that basis, I hope that the Committee will accept the amendments.