There has been some criticism levelled at the way that the revised clauses were introduced with immediate effect from 26 July 2001, which was the date on which the original draft clauses were published. The measure could be retrospective legislation in that it applies to contracts that were taken out before the publication of the draft legislation, whereas the Chartered Institute of Taxation has suggested that the provision ought to apply to contracts taken out after 26 July 2001. Are we right that that is what the clause means? If so, it is clearly a bad precedent to introduce retrospective tax legislation.
Clause 69 is an anti-avoidance rule that amends a special computational rule in the financial instruments legislation to ensure that it works as originally intended. It deals with the recognition of forward premiums and discounts, which are amounts equivalent to payments and receipts which accounting convention requires to be recognised in some circumstances.
The hon. Member for Arundel and South Downs is concerned about whether the rule is in any sense retrospective. I do not believe that it is. The new rule applies only to forward premiums and discounts—which should be recognised under UK GAAP—attributable to the period from 26 July 2001, the date on which the rule was announced and the clause first published.
I reiterate to the hon. Gentleman and to the Committee that such anti-avoidance measures are designed to catch sophisticated, carefully designed processes designed purely to avoid tax that is owed to
the state. I do not for a moment share the philosophical doubts of the hon. Member for Cities of London and Westminster about the legitimacy of raising a fair share of taxation from particular individuals or companies. I take the principled view, which I think is shared on the Labour Benches, that we should create a level playing field where everyone pays a fair share of tax. That is what the clause is designed to do.
I wish just to make the point that I was expressing the concerns of the Chartered Institute of Taxation. I am not sure that the Minister answered them, in that there is a difference between the measure being effective from the date of the draft legislation, which is perfectly fair and understandable, and its affecting contracts prior to that. I am well aware that the clause rightly deals with a narrow territory, but I should like clarity on that point.
I have made the position clear. We seek to avoid deliberate tax evasion. In one sense, it is updating an existing measure providing that tax should not be avoided. Companies should have no difficulty in interpreting what is and what is not tax avoidance. We do not want to miss the opportunity of avoiding leakage to the Exchequer, which the clause seeks to stop.
I am slightly concerned by what the Minister said. No one likes tax avoidance, and it is fine that people should pay their fair dues and so on. However, the law is the law and, as I have pointed out on many occasions, there is great strength in the Anglo-Saxon heritage in the UK and the USA compared with continental Europe, where there is a lack of clarity about the difference between avoidance and evasion. Such a lack of clarity leads to tax evasion and to a corrupt society. That is the reason for the massive evasion of tax on interest by German savers—[Interruption.]
Thank you, Mr. Benton.
Tax evasion became socially acceptable because of a lack of clarity about the difference between evasion and avoidance. Laws are passed by Parliament, courts interpret those laws and, by and large, people will take measures if they legally can to reduce their tax liabilities. It is a question of what is within the law and what is without it. The tidying up of laws that permitted avoidance—it may have been perfectly correct; in essence, it was commenting on the fact that the original law may not have been clear enough—is time-consuming and complex, but it needs to be done if we are to keep our principle. However, it is not correct to say, ''Oh, because we are blocking up a tax avoidance scheme, we do not mind its being retrospective.'' That is not in the tradition of British tax law. If that principle were to be followed, one would find that it led the country down some fairly undesirable byways.
I still ask my question on that narrow point. It is totally fair and reasonable to announce something on a particular date and say, ''From now onwards, the law is clear.'' However, it is relevant whether it applies retrospectively to contracts taken out before that date.
If I understand him correctly, I have some sympathy with what the hon. Member for Arundel and South Downs says. I wonder whether the Minister would clarify part of new section 168A to the Finance Act 1994, inserted by clause 68.
Subsection (3), at the top of page 46, allows an apportionment procedure for qualifying contracts for the purposes of dealing with the date of 26 July 2001. I cannot see that sort of apportionment for before and after that date in clause 69. I may not have read it correctly, or the contracts may be so complex that I do not understand them. Will the Minister explain why such apportionment is provided under clause 68 but not clause 69, which appears to give the retrospection about which I am uneasy?
It may help the Committee if I explain what the clause is intended to achieve. The clause is an anti-avoidance rule that deals with the recognition of forward premiums and discounts, which are amounts equivalent to payments and receipts that accounting convention requires be recognised in some circumstances. At the moment, avoidance schemes are set up that attempt to establish a mismatch between the amount of such premiums or discounts shown in accounts on one hand and the amount recognised for tax purposes on the other. That strikes me as a clear case of deliberate tax avoidance.
The amended rule aligns the recognition for tax of a forward premium or discount, as recognised under United Kingdom GAAP. It is a sensible measure that does not go against the tax tradition in this country, as the hon. Member for Arundel and South Downs implies that it will. Anti-avoidance rules always apply to existing contracts; it is not retrospective but prospective, and applies from the date from which the draft clause is published. In 1996, the Conservative party introduced just such an anti-avoidance measure when it was in government. I hesitate to look at the right hon. Member for Fylde because he may have been the Minister who sat where I am sitting now and proposed such a provision. We are merely following precedent. I rest my case.
The Chartered Institute of Taxation has commented that during the consultation process the changes proposed did not solve the problem of divergence between amounts recognised for tax and those recognised in the company's profit and loss account. The institute suggested that rewriting the operative provisions would solve the problem satisfactorily. Why did the Government not decide to rewrite the provisions entirely?
We have consulted extensively on the clauses that we have been discussing, which have not on the whole been criticised but generally welcomed by those in the industry who deal with complex financial
instruments, derivatives and loan relationships. They mark an advance on the previous legislation. The structural reforms make avoidance far less likely in future, in addition to the specific anti-avoidance measures.
Of course, such measures introduce an additional element of complexity; that is to be expected, but a balance must be drawn between protecting the interests of the Exchequer and the ease with which the measures can be carried out.
The hon. Gentleman suggests that we should have rewritten the rules. In fact, we have done so, and if he reads schedule 26 he will see a case in point.
Question put and agreed to.
Clause 69 ordered to stand part of the Bill.
Clauses 70 to 78 ordered to stand part of the Bill.