With this it will be convenient to discuss the following:
Amendment No. 569, in
clause 291, page 241, line 32, leave out from 'taxation' to 'and' in line 36 and insert
'if he makes the notifiable proposal available for implementation to five or more persons.'.
Amendment No. 570, in
clause 291, page 241, line 38, leave out '(ii)'.
Government amendment No. 556.
Amendment No. 3, in
clause 291, page 241, line 41, leave out
'is to any extent responsible'
and insert 'has the primary responsibility'.
Government amendment No. 557.
Parties who are involved in the design, organisation or management of arrangements will be caught under clause 291, irrespective of whether they are involved in the tax structuring, because someone else in their organisation provides tax services. Examples would include auditors advising on accounting questions, corporate finance or insolvency specialists involved in transactions, lawyers preparing documents in cases where their own tax specialists are not involved, and trust departments of banks. Equally, providers of tax services would be caught if they were involved in a transaction where a client who was unknown to them was seeking to secure a tax advantage.
The definition of promoter should be restricted to parties who are providing tax structures or tax services in relation to the notification arrangements or proposals in question. There are two amendments on that: Nos. 569 and 570. Amendment No. 3 would not answer fully all the points that I have just made, but it would remove secondary parties from the frame. The existing wording makes any adviser who is involved to any extent liable to report the arrangements to the Inland Revenue, thereby imposing a disproportionate obligation on advisers who are not primarily involved in marketing. In defining the promoter as the person with primary responsibility for the arrangements, amendment No. 3 targets the obligation for reporting in a more focused way on the person who is marketing the scheme.
Going back to the more fundamental point that I made earlier, amendments Nos. 569 and 570 would
limit the definition of promoter to situations in which schemes are being marketed. Surely the new direct tax disclosure regime aims to focus on pre-packaged, mass-marketed tax planning schemes. In our view, it would be wiser to start with measures that we believe are likely to catch 75 to 80 per cent. of what is being sought and to make them work, rather than having arrangements that might not work because they are trying to bite off too much in one fell swoop.
The general aim of the disclosure regime is that, other than with marketed schemes, the concept of disclosure is not an issue with the vast majority of advisers, taxpayers and auditors. In introducing the new disclosure requirement, however, it would be wiser to focus on the sort of pre-packaged schemes that have caused concern in recent years. Those are the schemes that the authorities really want to know about. As drafted, the rules encompass a vast regime of tax planning activities, particularly the great deal of advice that flows from the usual client-adviser relationships pertaining to everyday transactions. I fear that that will give rise to a huge administrative burden on business, on the profession and on the Revenue.
As an aside, I am sure that the Government have considered the US experience in this regard, and I hope that the Paymaster General will be able to comfort me that I have less reason to worry that the Revenue will be snowed under than I fear. As I said, the amendment would limit the disclosure requirements to proposals that have been made available to several persons. The figure of five or more has been chosen as a minimum number to give an indication of real marketing activities. If we are to focus on marketing, we can dispense with the trigger of notifiable arrangements, which becomes unnecessary.
The Minister has said that, at least for now, the Government are not thinking of backing a little towards a key focus on marketing schemes, which we believe would be a very positive step towards making these arrangements work. I hope, however, that she will want to accept my amendment so that some comfort may be given by limiting the number of people who will be caught by the requirements under the clause.
The disclosure rules are designed to apply to all promoters who, in the course of a trade, profession or business, have responsibility for the design and organisation of a notifiable scheme or arrangement. That includes accountants, tax advisers, solicitors, lawyers, barristers and financial institutions such as banks. The definition of promoter is set out in the clause, which restricts it to someone
''in the course of a trade, profession or business which involves the provision to other persons of services relating to taxation''.
That seems perfectly reasonable, but representatives of the accountancy and banking professions have pointed out that defining a promoter in that way might inadvertently exclude banks from any requirement to disclose in a way that we do not intend, because of the particular way in which banks promote these schemes. It is fairly common for banks to devise and market financial products, with which the hon. Gentleman may be familiar, whose purpose is to generate a tax
advantage, without providing their clients with any advice that relates directly to taxation. They could be contributing to the design and modernisation of a scheme, but they are not directly in the business of providing services related to taxation, so there is a risk that they would not be caught by the rules.
Banks have a significant involvement in that market, and it would be unfair if the disclosure rules did not apply to them in the same way as they do to other promoters. That is the point that has been made to the Inland Revenue in consultations. The purpose of the Government amendment is to remove any doubt that banks are subject to disclosure rules as other promoters are. It makes it explicit that they are subject to the rules if they have responsibility for the design, organisation or management of a scheme or arrangement, even where they do not directly provide advice relating to taxation.
That does not represent a widening of the rules, or a change to the underlying policy. It merely confirms the original intention that the rules should apply to all promoters fairly and equally. It does so by using two definitions of banks from existing tax legislation. On their own, those definitions do not go the whole way towards bringing banking groups into the new regime, but subsection (1)(b) and (c) bring in non-banking companies in a banking group.
The Opposition amendments to clause 291 go further than simply clarifying the definition of a promoter. They would narrow that definition in various ways. Amendment Nos. 569 and 570 would reduce the occasions when a promoter must make a disclosure of a scheme that has been designed but not implemented. They would do so by limiting the disclosure requirement to cases where the proposal is made available to five or more persons.
I simply cannot accept or support the amendments. They do not reflect the scale of the potential exposure to the Exchequer, because it could involve five or four individuals who have an enormous amount to gain. The amendments also draw a distinction between notifiable arrangements and notifiable proposals. Notifiable arrangements are where arrangements have been entered into and the transaction has taken place, while notifiable proposals are descriptions of arrangements that have not yet taken place and may never do so.
The amendments are intended to leave in place the obligation on promoters to disclose all notifiable arrangements but to limit the disclosure for notifiable proposals to schemes that have been widely marketed. I understand the hon. Gentleman's good intentions, but the amendments would unfortunately open up the opportunity for promoters to provide bespoke advice to their clients that would never be disclosed to the Revenue. The exposure of the Exchequer could be enormous, and it is not proportionate.
If the amendments were accepted, the bespoke advice would not need to be disclosed as a notifiable proposal. After advising a client to use a scheme, the adviser would step back and ensure that he or she did not know whether the scheme was entered into. That
way, there would never be a relevant date when the promoter needed to make a disclosure, and it could be arranged so that no one else needed to disclose either. They would simply sidestep all the rules.
I hope that hon. Members do not think that I am being cynical, but such is the ingenuity of those who seek to get around the rules that it would be foolish for us to accept amendments that provide ways around the rules that we are already able to understand. It would undermine our legislation and create a significant defect in the disclosure rules that would be exploited by those who are determined to continue to do so. For that reason alone, I must resist the amendment.
Amendment No. 3 would narrow the definition of a promoter to any person who has primary responsibility for the design, organisation or management of the notifiable arrangements. It would do so in respect of notifiable arrangements, but not in respect of those who design them or those who make arrangements available for their implementation. That may be what the Opposition seek to achieve—I do not actually think so—but it is difficult to understand the purpose of such a distinction; it would almost certainly create confusion in practice. If that is not what was intended, the amendment is defective.
The amendment would introduce the subjective concept of a person who has primary responsibility for the design, organisation or management of notifiable arrangements. It would make compliance more difficult for the majority of scheme promoters who want to comply with the disclosure rules. People have been telling us that they think the Government's proposal is good way forward and that we should make it work. If the amendment were accepted, it would not be clear in many cases who has primary responsibility, and restricting the definition of promoter in this way would offer a potential escape route to those who are looking for ways to continue to avoid disclosing. Therefore, I cannot accept amendment No. 3, either.
The hon. Member for Arundel and South Downs referred again to the information that will be coming to the Revenue. Each of the clauses sets the scope and, if there are regulations, provides the filters. I am satisfied that the Revenue's advice at this stage indicates that the filters should produce the disclosures that we seek and that they are proportionate to the challenge that we face, which can be dealt with competently and efficiently by the Revenue. If he presses his amendments to a vote, I will ask my hon. Friends to support the Government's amendments but to oppose those of the Opposition.
What the Paymaster General said in her latter comments goes to the heart of the issue, which is whether the narrowing down from what is in the clauses via the regulations focuses on what is wanted. I accept that amendment No. 3, which was tabled very early, is inadequate by itself, but the purpose of the amendments was to focus on the key territory and to seek to avoid reporting that is far too wide. Time will tell, but I urge the Government to be practical in their
use of regulations and to cut them down to achieve what I believe everybody knows they are really after.
Amendment agreed to.
Amendments made: No. 556, in
clause 291, page 241, line 40, leave out from 'of' to 'he' in line 41 and insert 'a relevant business'.
No. 557, in
clause 291, page 242, line 2, at end insert—
'(1A) In this section ''relevant business'' means any trade, profession or business which—
(a) involves the provision to other persons of services relating to taxation, or
(b) is carried on by a bank, as defined by section 840A of the Taxes Act, or by a securities house, as defined by section 209A(4) of that Act.
(1B) For the purposes of this section anything done by a company is to be taken to be done in the course of a relevant business if it is done for the purposes of a relevant business falling within subsection (1A)(b) carried on by another company which is a member of the same group.
(1C) Section 170 of the Taxation of Chargeable Gains Act 1992 has effect for determining for the purposes of subsection (1B) whether two companies are members of the same group, but as if in that section—
(a) for each of the references to a 75 per cent subsidiary there were substituted a reference to a 51 per cent subsidiary, and
(b) subsection (3)(b) and subsections (6) to (8) were omitted.'.—[Dawn Primarolo.]
Clause 291, as amended, ordered to stand part of the Bill.