Clause 181 - Transfers within a group by companies carrying on ring fence trade
Cathy Jamieson (Kilmarnock and Loudoun, Labour)
This clause is technical and considered relatively uncontroversial by the industry. It ensures consistency of tax treatment of all gains and losses within the so-called ring fence. It amends section 171A of the Taxation of Chargeable Gains Act 1992, which provides for an election to transfer a gain or loss from one company to another member of the group. It restricts the scope of section 171A. Under the current legislation, where there is a transfer of a ring-fence chargeable gain from a ring-fence company to a non-ring fence company, the ring-fence gain is not subject to a supplementary charge, because the non-ring-fence company does not fall within the scope of the supplementary charge. I am sure that that is known to everyone in detail.
I want to make a few comments so that the Minister can, if she wishes, bring up any concerns or issues relating to the measures. I understand that we want to reach a certain point in the Bill—having given the measures proper scrutiny, of course—in good time for 7.45 pm, when people may have other commitments, although the Scots among us may perhaps take a different view on that. I will therefore restrict my remarks.
Chloe Smith (Norwich North, Conservative)
I will honour that spirit by being as brief as I can in discussing clauses 181 and 182. Clause 181 ensures that an election cannot be made to transfer a ring-fence chargeable gain from a company carrying on a ring-fence trade to a company not carrying on a ring-fence trade, and so avoid supplementary charge on the gain.
For hon. Members who are still in the dark, this provision relates to oil and gas activity, notably in the UK continental shelf. By way of background, this clause makes changes to the oil and gas fiscal regime which applies to companies producing oil and gas there. The regime, as Members will know, is made up of three main taxes: petroleum revenue tax, ring-fence corporation tax, and supplementary charge.
The introduction of this clause and clause 182 was announced on 6 December 2011 and both clauses are effective from that date. Clause 182 simply confirms that the supplementary charge applies to chargeable gains as ring-fence corporation tax does. Clause 181 affects the way asset disposals by companies in a group are treated for the purposes of ring-fence corporation tax and supplementary charge on chargeable gains. The general rule is that companies that are members of the same group can elect to transfer chargeable gains and losses between them. The rules for the election were simplified in the Finance Act 2009. However, an unintended consequence was that where a transfer took place from a ring-fence company to a non-ring-fence company, any ring-fence chargeable gain transferred would not be subject to supplementary charge. Therefore, as I have said, the changes made by the clause ensure that an election cannot be made to transfer a ring-fence chargeable gain from a company carrying on a ring-fence trade to a company not carrying on a ring-fence trade.
The change will affect only group companies carrying on a ring-fence trade that were contemplating making such a choice, the effect of which could be to avoid paying a supplementary charge applying to a ring-fence chargeable gain. It is probably clear to the Committee that we wish to avoid any such use of an unintended consequence, and the Government’s firm view is that the scope of the supplementary charge matches that of the ring-fence corporation tax.
The clause supports the Government’s commitment to protect revenues and promote fairness in the tax system by removing an unintended consequence of current legislation. Companies will no longer be able to make such a side-step on the supplementary charge, and it is anticipated that the clause may, as a result, increase Government receipts by some £10 million per annum.
The amendment was introduced with immediate effect from December last year to prevent loss to the Exchequer in the period between the announcement of the policy and enactment of the legislation. As the hon. Member for Kilmarnock and Loudoun has said, the clause is not controversial. We are not aware of any calls from the industry for changes to the clause since its publication in draft form last year.
I will briefly refer to the package of oil and gas measures that were announced at this year’s Budget. The package was warmly welcomed by industry and will help to maximise the potential return from the UK’s natural resources. In conclusion, the clause supports the Government’s objective of protecting revenues in that vital industry by ensuring that the supplementary charge applies to ring-fence chargeable gains as intended.