Schedule 34 - Stamp duty: withdrawal of group relief: supplementary provisions

Finance Bill – in a Public Bill Committee at 5:00 pm on 18th June 2002.

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Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury 5:00 pm, 18th June 2002

I beg to move amendment No. 238, in page 462, line 22, at end insert—

'Relief not withdrawn in case of winding-up

2A (1) Section 109 does not apply if the transferee company ceases to be a member of the same group as the transferor company by reason of anything done for the purposes of, or in the course of, winding up the transferor company or another company that is above the transferor company in the group structure

(2) For the purposes of this paragraph a company is ''above'' the transferor company in the group structure if it is the parent (within the meaning of the relevant group relief provision)—

(a) of the transferor company, or

(b) of another company that is above the transferor company in the group structure.'.

For the record, I should set out the Government's intentions with regard to the amendments, as the Opposition have not had much notice of their content. Schedule 34 ensures that a clawback charge is not triggered if a transferor company leaves the group. However, we have been asked whether the clawback is similarly not triggered when the transferor company goes into liquidation. It is not our intention that the liquidation of the transferor company should give rise to the clawback charge. To address that point, Government amendment No. 238 ensures that group relief is not withdrawn where the transferor company leaves the group by way of liquidation.

That is the case whether the liquidation is that of the transferor company or a company that is above the transferor company in the group structure.

Amendment agreed to.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I beg to move amendment No. 239, in page 463, line 10, leave out sub-paragraph (1) and insert—

'(1) If any duty payable under section 109 is not paid within the period of 30 days within which payment is to be made, interest is payable on the amount remaining unpaid.'.

Photo of Roger Gale Roger Gale Vice-Chair, Conservative Party

With this it will be convenient to take Government amendment No. 244.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

Amendment No. 239 addresses a point raised by representative bodies regarding the date from which interest runs on the clawback charge. We have listened to representations that claim that it is inequitable to apply interest from the date of the original intra-group transfer. Although this is an anti-avoidance provision, we are content that interest should apply only where the clawback charge itself has not been paid within 30 days of having been triggered. The amendment ensures that interest will apply only to any amount of the clawback charge that remains unpaid at the 30-day point.

Amendment No. 244 achieves an identical effect for Schedule 35, which contains provisions for clawing back the relief for company acquisitions. It also addresses points put to me by representative bodies. I commend the amendments to the Committee.

Amendment agreed to.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I beg to move amendment No. 169, in page 464, line 3, leave out paragraphs 7 and 8.

Photo of Roger Gale Roger Gale Vice-Chair, Conservative Party

With this it will be convenient to take the following: Government amendments Nos. 240 to 242.

Amendment No. 170, in page 468, line 12, leave out paragraphs 8 and 9.

Government amendments Nos. 245 and 246.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I hope that the Government amendments will address the points raised by our amendments Nos. 169 and 170, but I have not had the opportunity to digest them yet. Our amendments deal with issues raised by the Law Society of England and Wales. Subsections (7) and (8) of clause 109 and subsections (8) and (9) of clause 111 all impose a secondary liability on other group companies and controlling directors for clawback of stamp duty relief, which can arise inadvertently. The Law Society

considers such a power to be excessive, wholly inappropriate and liable to create material difficulties with financing arrangements.

Schedule 34 provides that, where group relief is withdrawn, a secondary liability could fall on a controlling director of the transferee company or any company that has control of the transferee company. There are no existing provisions under which the secondary liability for stamp duty is imposed, and in the Law Society's view, it is inappropriate to introduce the concept at a time when the stamp duty rules are about to be changed substantially, particularly as in the majority of cases, any withdrawal of relief is likely to have arisen entirely as a result of transactions that were not in the contemplation of the parties at the time of the original transfer. For example, if property had been transferred to a development company in the group without any wrongdoing on the part of the company, it seems grossly inequitable that, if the company became insolvent and was sold, a person who was a controlling director at the time of the original transfer could be held liable for any stamp duty that became due as a result.

If, notwithstanding the above comments, it is considered that provision for a secondary liability should be made, the Law Society's view is that, following a similar approach to that adopted in section 190 of the Taxation of Chargeable Gains Act 1992 in relation to UK companies, a secondary liability can be imposed only on a member of the group that has owned the asset in the previous 12 months.

I trust that the Government are already aware of the legal community's concerns on both counts. The clause 111 issue is that the use of the definition of control in section 416 of the Taxes Act 1988 is likely to lead to considerable uncertainty about whether the clause may result in the withdrawal of relief under section 76 of the Finance Act 1986. The Law Society recommends instead the definition of control set out in section 840 of the Taxes Act 1988. I hope that the Minister will be able to advise that what are considered to be moral measures, as well as definitional measures, will be limited by the Government's amendments.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

In the event that the transferee company fails to pay the clawback charge under clause 109, paragraphs 7 and 8 of schedule 34 will provide for the charge to be recovered from another group company or certain controlling directors. It is vital that those powers are included in the schedule, as they will allow the Inland Revenue to look to other persons, where the charge has been triggered by the transferee company but—for reasons of liquidation, for example—the charge cannot be recovered from the transferee company. So I cannot agree with the broad thrust of the argument made by the hon. Member for Arundel and South Downs.

That type of recovery power is not unique. It has previously been used in legislation on the tax recoverable from another group company or controlling director in respect of corporation tax on chargeable gains. The clawback of stamp duty group

relief under clause 109 is an anti-avoidance measure, which aims to discourage the use of companies set up to avoid stamp duty. There is no reason why the charge should not be collected from other companies in the group or, indeed, failing that, from a controlling director.

Where the transferee company pays the clawback charge, there is no question that such provisions would be invoked. The provisions merely support the proper administration of the withdrawal of group relief provisions. However, I can tell the hon. Gentleman that the Government have listened to representations on the breadth of the companies from which the clawback charge can be recovered. As a result, we tabled Government amendments Nos. 240 to 242, which will limit the companies from which group relief is recoverable, in the event of non-payment by the transferee company, to the transferor company or any company that is above the transferee in the group structure. That answers concerns that the charge could be recovered from any company in the group, even if the company were not above the transferee company in the group structure, and it addresses the representations that have been made regarding real commercial constraints of the breadth of the recovery power.

I should add that Opposition amendment No. 170 and Government amendments Nos. 245 and 246 achieve the same effect for schedule 35, which contains supplementary provisions for withdrawal of relief on company acquisitions. The same reasons for rejecting the Opposition amendment and supporting the Government amendments therefore apply to schedule 35.

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

Is the limitation period for the recovery of tax on the withdrawal of group relief six years from the original transaction?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

The hon. Gentleman knows that clause 109 is an interim measure, to counter widespread avoidance before the introduction of a modernised stamp duty regime. The clawback charge is triggered when a transferring company leaves the group within two years of an intra-group transfer. That two-year provision is also translated to the limitation to which the hon. Gentleman refers, so it is two years from the original transaction, rather than the six years that he assumed. I hope that the hon. Gentleman is satisfied and I urge the hon. Member for Arundel and South Downs to withdraw his amendment.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I am delighted that, in a slightly hidden way, the Minister has confirmed that the Government amendments have addressed the points at which both our amendments are directed. They are reasonable points, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 240, in page 464, line 12, leave out paragraph (a) and insert—

'(aa) the transferor company;

(ab) any company that, at any relevant time, was a member of the same group as the transferee company and was above it in the group structure;'.

No. 241, in page 464, line 17, leave out 'this 'purpose' and insert

'the purposes of this paragraph—

(a)'.

No. 242, in page 464, line 19, at end insert—

'(b) a company is ''above'' another company in a group structure if it is the parent (within the meaning of the relevant group relief provision)—

(i) of that company, or

(ii) of another company that is above that company in the group structure.'.—[Ruth Kelly.]

Schedule 34, as amended, ordered to stand part of the Bill.

Clause 110 ordered to stand part of the Bill.