I beg to move amendment No. 192, in
schedule 7, page 169, line 44, at end insert
'other than arrangements for an event falling within one of the cases set out in paragraph 4 below'.
The amendment refers to paragraph 2 on page 169, which provides anti-avoidance rules to restrict the availability of group relief covered by the schedule. It applies when different types of arrangement are entered into relating to the control of companies, the provision of consideration from outside the control or when the vendor and purchaser are to cease being
members of the same group. When such arrangements exist at the effective date of the transaction, group relief is not due. I have received representations, notably from Charles Elphicke of Reed Smith, but also from the Law Society.
In general, relief from stamp duty land tax on the transfer of land between associated companies is withdrawn if the purchaser ceases to be associated with the vendor within a set period. Paragraph 4 recognises that relief should not be withdrawn when the companies cease to be associated by reason of certain non-disqualifying events. However, if at the time the group transfer takes place, there is an arrangement to carry out one of those disqualifying events, relief is not available. That seems unreasonable. The amendment would permit group relief to be claimed when there are arrangements for the purchaser to cease to be associated with the vendor, but those circumstances are not such that would give rise to any clawback of relief under paragraph 3. I trust that that is clear to the Chief Secretary.
Amendment No. 192 would add a proviso to paragraph 2(1) and would permit group relief to be claimed when there are arrangements for a company to leave the group in one of the circumstances detailed in paragraph 4. The amendment is clearly intended to extend the range of circumstances in which group relief can be claimed. It proposes that if any of the conditions in paragraph 4 of the schedule are met when land is transferred intra-group, a claim to group relief under paragraph 2 should be allowed.
I am grateful to Opposition Members for tabling the amendment. My officials have carefully considered the detail and have engaged in a dialogue with the Law Society regarding the interaction between paragraphs 2 and 4 of schedule 7. I am pleased to report that, following that dialogue, the Law Society is happy to accept that in the first and second cases mentioned in paragraph 4, it is extremely unlikely that there will be arrangements for persons to obtain control of the purchaser but not the vendor. It is therefore in agreement that that part of the amendment is unnecessary. However, the situation is different for the third case in schedule 4, which concerns a situation where a claim to group relief interacts with section 75 of the Finance Act 1986.
We recognise that a claim to group relief should not be disallowed where a transfer takes place prior to a demerger for which reconstruction relief under section 75 will be claimed. We will therefore table an amendment on Report to address that point. On the basis that I have made a commitment to address the
substantive point raised, I hope that the hon. Gentleman will withdraw the amendment. We shall return to its substance, as agreed by ourselves and the Law Society, at a later stage.
I beg to move amendment No. 191, in
schedule 7, page 170, line 28, leave out from 'transaction' to end of line 30.
This amendment is narrow, but of concern. It relates to paragraph 3, which withdraws group relief if, following a successful claim to group relief, the purchaser ceases to be a member of the same group as the lender within three years of the date of the transaction. Again, I am grateful to the Law Society for its support and advice.
As a matter of current law, where stamp duty relief has been claimed on the transfer of land between companies in a group, the relief is clawed back if the purchaser leaves the group within two years. Paragraph 3 would not only extend the clawback period to three years, but would provide for a clawback made outside the three-year period in pursuance of arrangements made before the end of that period. Having extended the clawback period to three years, to extend further by reference to ''arrangements''—I think that that is the phrase used—seems unnecessary and can only create uncertainty on the possibility of clawback. The amendment would limit the ambit of the paragraph to circumstances in which the relevant company ceases to be a member of the group within three years after the effective date of the transaction.
The amendment stems from advice from outside experts, particularly the Law Society. As with the previous amendment, I hope that the Chief Secretary will be able to be convivial and supportive.
I agree with my hon. Friend. I shall not repeat what he said, but the extension of the clawback period from two to three years seems unjustified, and I will be interested to hear the Chief Secretary's explanation of why it is proposed. The inclusion of the so-called other arrangements means that even a three-year period could be extended.
Briefly, I would like to talk about the general policy issue here, because we are talking about a time in which British manufacturing is in deep recession. It has lost 6,000 jobs in recent times.
Thank you, Mr. McWilliam. I shall not specifically address the hon. Gentleman's point for the reasons that you gave. I mentioned the issue because in order to survive, many companies are desperately trying to restructure their assets, which involves them selling assets between group companies. That is exactly what the schedule is about. They will transfer their best assets to the group companies that they want to go forward, and will then look to release those assets that are not taking the business forward. In a tough time, that is what companies have to do. Why, when companies are trying to restructure themselves to survive, are the Government making it harder for them to do so? That is what we are talking about here, and that is why I support the amendment.
I am afraid that I must disappoint the hon. Member for Hertford and Stortford—no more Mr. Nice Guy. I am asked why we are increasing the limit from two to three years, and I can tell hon. Members that we are introducing the measure to make avoidance more difficult. Companies might be prepared to wait out two years, but not three. That is the point of the schedule. We oppose the amendment, which intends to remove an anti-avoidance provision. That seems entirely reasonable. Amendment No. 191 seeks to remove paragraph 3(1)(a)(ii) of schedule 7, which provides that group relief will be clawed back if the company that has claimed group relief leaves the group under arrangements entered into during the three-year clawback period. We do not want that paragraph to be removed.
This additional anti-avoidance measure is our response to continued avoidance using special purpose vehicles. We are aware that some groups of companies have been prepared to use group relief to transfer into an SPV with the specific intention of selling it after the end of the clawback period. We do not think that it is right that they should be able to do that for the purpose of avoiding tax. If arrangements have been entered into for onward sale during the clawback period, it is legitimate for group relief to be withdrawn. That type of scheme would represent straightforward avoidance of the clawback provisions, which would not be in line with our fairness agenda. To present that, as the hon. Member for Huntingdon has done in a tone rightly characterised as provocative, as somehow being a legitimate response to prevailing commercial conditions in manufacturing and other sectors, seems completely disingenuous. I urge hon. Members to reject the amendment unequivocally.
As the Chief Secretary says, we have no more Mr. Nice Guy. We enjoyed what was obviously a brief sojourn. Never mind.
I am disappointed by the Chief Secretary's comments. As we read and listen to the evidence presented by outside professional bodies, such as the Institute of Chartered Accountants and the Law Society—esteemed bodies that he would not wish to suggest promote or encourage tax avoidance—we can see that they genuinely believe that the amendment has significant merit. I have to say that the Chief Secretary's reply does not. On that basis, we shall not withdraw the amendment as he has suggested, but shall press it.
Question put, That the amendment be made:—
The Committee divided: Ayes 5, Noes 18.
I beg to move amendment No. 252, in
schedule 7, page 173, line 36, at end insert—
'Relief under this paragraph is referred to in this Part as ''reconstruction relief''.'.
Amendment No. 252 is the first of a series of Government amendments designed to complete the index of defined expressions set out in clause 122. In consultation, members of representative organisations have been pressed for views on the clarity of the drafting in part 4 of the Bill. The balance of views is that the drafting follows tax law rewrite principles and, given the complexity of some of the material, is relatively—I stress that word—easy to follow. A complete list of defined expressions reflects those principles and provides just a little more clarity. For that reason, we believe that amendment No. 252, and the other 16 designed to achieve the same end, are important. As such, I commend them to the Committee.
I tabled the amendment as a result of information briefings from Mike Hardwick of Linklaters, which is a leading City law firm. He is
shortly to take over as chairman of the Law Society's tax law committee. He is an eminent tax lawyer, as is his predecessor as chairman, Mr. Ed Troup, who is well known to the right hon. Member for Fylde (Mr. Jack). The Law Society's committee is now called the tax law committee, but it was called the revenue law committee when I was on it. Perhaps its present name is clearer and more straightforward.
I gave notice of the purpose of the amendments to the Chief Secretary's officials. The amendments are fairly simple, but they relate to far-reaching and important matters. Briefly, as you know, Mr. McWalter, paragraph 7 of the schedule gives relief from stamp duty land tax if land is acquired in pursuance of a scheme of reconstruction. However, the relief is clawed back if the acquiring company undergoes a change of control within three years of reconstruction. The circumstances in which a change of control is regarded as occurring are broadly drawn, with the result that the relief could be clawed back as a result of a small change in shareholdings. That makes the relief of little practical use to quoted companies whose shareholdings fluctuate constantly.
The Chief Secretary does not need me to remind him how important quoted companies are for our economy, for jobs and for our balance of payments. We should seek to help them. I hope that the Chief Secretary will be able to give me encouragement in relation to this matter. I could speak for longer about it, but I know that time is short. As I said earlier, I gave notice of the purpose of these important amendments to the Chief Secretary's officials last week.
I thank the hon. Member for Torridge and West Devon for extending to my officials and me the courtesy of giving us advance notice of his intentions in relation to the amendments, which would ensure that reconstruction relief or acquisition relief will not be withdrawn unless control changes as a result of persons acting together.
Paragraph 9 of the schedule is a complex anti-avoidance provision that aims to discourage companies from using corporate vehicles to avoid stamp duty land tax. Prior to the Finance Act 2002 companies exploited the rules for the partial stamp duty relief for acquisition by using acquisition relief to facilitate moving UK land into a special purpose vehicle to sell the land on within a corporate wrapper. As the hon. Gentleman will recall, we tackled that abuse in the 2002 Act by introducing a provision that clawed back the reconstruction relief already granted where UK land is transferred, reconstruction relief has been claimed and control of the purchasing company changes within the relevant time period. That anti-avoidance provision has been carried forward into SDLT in the schedule. The Bill extends the clawback of relief to reconstruction relief to prevent avoiders from using that relief instead, which seems eminently
sensible, as they would certainly use that relief, unless we took this action.
Amendments Nos. 276 and 277 would limit the effectiveness of the anti-avoidance legislation by introducing the concept of persons acting together. They would prevent reconstruction or acquisition relief from being withdrawn unless the persons to whom control had passed had acted together, and would therefore create a loophole in the legislation. Persons intent on avoiding the clawback charge would ensure that they did not fall within the definition of acting together when gaining control of the purchasing company. The clawback would therefore not be triggered, and the purpose of the Bill would be frustrated.
Paragraph 9 is an important part of our anti-avoidance strategy for SDLT and shows that we are serious about combating avoidance. I assure the hon. Gentleman that if control of a publicly owned company changes as a result of an ordinary market transfer of its shares, there will be no recovery, because we do not intend to interpret change of control so widely that simple day-to-day transactions by unconnected minority shareholders on the stock exchange could trigger a clawback. I hope that, with that assurance, the hon. Gentleman will not press his well-intentioned but unhelpful amendments to a vote.
I am grateful for the Chief Secretary's comments. We all know of the famous case of Pepper v. Hart, which provides guidance. I hope that I shall not have to return to the matter on Report, but the fact that bona fide commercial transactions in the ordinary course of dealings on the stock exchange will not be taken into account by the stamp duty office of the Inland Revenue is an important concession. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 7, as amended, agreed to.