Schedule 3 - Qualifying Scheme

Part of Finance Bill – in a Public Bill Committee at 3:45 pm on 23 June 2005.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 3:45, 23 June 2005

I beg to move amendment No. 48, in schedule 3, page 69, line 25, at end insert

'and the instrument, shares, securities or debt instrument involved is not of a class of instrument, share, security or debt instrument which is traded upon a recognised stock exchange or upon a recognised investment exchange within the meaning of section 841 of ICTA,'.

Paragraph 4 of schedule 3 deals with schemes that achieve the hybrid effect by the use of convertible debt instruments. The purpose of including such instruments in the rules is that although they are an equity-type investment in terms of their risk and return, the coupon is deductible interest and not dividend from the UK company's tax perspective. The amendment, which I stress is probing, would provide an exclusion for publicly listed instruments.

I am assured that similar provisions exist in relation to UK group relief rules so that quoted instruments—listed instruments—cannot be treated as quasi-equity by the Revenue for the purpose of arguing a dilution of percentage shareholdings and thus denying group relief to a taxpayer. Our aim is to narrow the scope and limit the legislation to clearly contrived schemes, which I suggest would not use listed instruments. The amendment uses the definition of recognised stock exchange in the section 841 of the Income and Corporation Taxes Act 1988.

I accept that the amendment may be slightly widely drawn, in that it refers to any instrument that is listed on a recognised stock exchange, and I accept that there may be an argument that some such instruments could be used in such a scheme. However, will the Paymaster General address the substance of the argument? Would the fact that an instrument is listed—she might like to tighten the wording to ''actively traded''—be a reason for not applying the definition in paragraph 4, rather than simply a material consideration in determining an individual case? I realise that the question of whether or not the instrument is traded will be a material consideration in determining the case, but I hope that she can say that in certain circumstances it will be apparent in advance, where an instrument is listed or perhaps traded, that it does not come under the legislation. That would give us more certainty and clarity.