Clause 177 - Loan relationships: amendments

Finance Bill – in a Public Bill Committee at 3:15 pm on 17th June 2003.

Alert me about debates like this

Question proposed, That the clause stand part of the Bill.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

Clause 177 and schedule 37 are relatively technical and complex provisions that relate to company loan relationships. We understand from the introductory words of schedule 37 that it is designed to correct some technical defects on loan relationships in the Finance Act 1996. That relates also to clause 178, which makes changes to derivative

contract legislation that are intended to be in line with the changes made in schedule 37 on loan relationships.

Both procedures have a rule under which transactions between members of the same group are generally tax exempt; the arrangements are supposed to be tax neutral, and the intention is to ensure that the arrangements work and are even handed. I should probably deal with the specific points that I wish to raise once we come to schedule 37, but I have commented on clause 177 because we are concerned that the latter objective that I described is not entirely achieved by schedule 37 arrangements.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

The Paymaster General will probably be aware that the Law Society and others have criticised clause 177 and its associated schedule. It has been said that the information made available at the time of the Budget was insufficiently precise, particularly given that many individuals would have been immediately affected. The Law Society suggests that when tax changes are effective from Budget day rather than from some future date, the Government should consider immediate publication of the relevant clauses, so that those who are affected by them can manage their tax affairs immediately. Is it in the Government's mind to take that sort of approach in future?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I shall leave comments on specific points until we reach the schedule. Our purpose is to make a number of corrections to the loan relationship rules in the Finance Act 1996. First, the provisions ensure that profits do not fall out of charge when contracts are transferred into a group. Secondly, they put beyond doubt the current tax treatment of contracts in inter-groups. Thirdly, they ensure that exchange differences are correctly recognised when contracts are transferred into a group. Fourthly, they prevent the loss of tax—perhaps up to £2 billion—on a technical defect in the transitional rules relating to changes that were made in the Finance Act 2002. Lastly, they would stop avoidance involving late paid interest and discounts owed to connected persons and participants, which involves something in the region of £50 million.

The direct answer to the hon. Member for Yeovil is that publication of the legislation followed normal practice by Governments of all political persuasions when publishing anti-avoidance procedures. We shall be able to discuss how the provisions will work when debating schedule 37. I do not accept that the material published on Budget day contained insufficient information. It simply explained simply what the measure does. There is no evidence to suggest that the information provided was inadequate. Indeed, the Inland Revenue received phone calls on and following Budget day from advisers who recognised that the anti-avoidance measure applied to their clients, and who sought confirmation that the view that they had formed from the Budget material was correct. Some of those comments, with which I shall deal, were from the Law Society, which felt that it had been targeted. That was not the case; it was an anti-avoidance measure. I

shall go into a little more detail when we discuss the amendments.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)


Perhaps we can deal with the matter when we get to the amendments. We followed the practice of all Governments in publishing anti-avoidance legislation and ensuring that details are explained. It will be much more helpful if we can pick up the points made by the Law Society in the context provided by the schedule.

Question put and agreed to.

Clause 177 ordered to stand part of the Bill.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield 3:30 pm, 17th June 2003

Before we move on to schedule 37, may I say that we have just under two and a half hours to complete some 47 clauses, schedules and new clauses. I merely draw that to the attention of the Committee.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

On a point of order, Sir Nicholas.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

No. Hold on. I ask the hon. Gentleman to resume his seat. Because it is very hot, it is easy to lull oneself into an inaccurate sense of security about the progress that we are making. I am in the hands of the Committee. I have pointed out a fact. If the hon. Gentleman still wishes to intervene, he may.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

Sir Nicholas, you rightly point out how much there is still to do. That further proves that the artificial deadline is unacceptable and stupid, and should not have been imposed.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

The Committee notes what the hon. Gentleman says. However, we are subject to a decision that has already been made by the House as a whole, and we have to implement what it has decided.Schedule 37 Loan relationships: amendments