Schedule 3 - Qualifying Scheme

Part of Finance Bill – in a Public Bill Committee at 4:00 pm on 23 June 2005.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 4:00, 23 June 2005

I have a question to put to the Minister on paragraph 3. For clause 24 to bite, four conditions have to be met, including condition A, which is that the scheme is a qualifying scheme as defined in schedule 3. The schedule is then broken down into different parts dealing with hybrid entities, schemes involving hybrid effect and schemes involving hybrid effect through connected persons.

''under the tax law of any territory, the entity is regarded as being a person''.

It has been suggested to me that that is clearly intended to mean ''under the tax law of any relevant or pertinent territory''—that is, a territory in which the entity is taxed because it is resident there or a territory that taxes the members of the entity because they reside there.

Given how the paragraph is drafted, it is arguable that regard should be had to the tax law of every territory in the world to ascertain whether an entity is regarded as a person. Clearly, that would be an almost impossible test to fulfil and would introduce huge uncertainty. Taxpayers would have to keep an eye on the changing tax laws of remote territories and emerging countries that have legislation that is not widely scrutinised in this country. It has been suggested to me that if that were the correct interpretation, every entity would be a hybrid entity, including all UK companies, as it would not be possible to conclude confidently that either A or B were not satisfied where it is known that B or A is satisfied.

I hope that the Minister can confirm—I am sure that she can—that the paragraph is intended to mean ''under the tax law of any pertinent or relevant territory'', which in this case would mean territory in which the entity is resident or in which any of the partners in the entity are resident and are taxed. We have not tabled any amendments to this effect, but will she consider whether clarification is needed to make it clear that the paragraph does not mean any territory whatever, anywhere in the world?