Clause 37

Finance Bill – in a Public Bill Committee at 6:00 pm on 9th June 2009.

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International movement of capital

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

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I welcome you to the Chair, Mr. Atkinson, for the graveyard slot—well, I hope it is the graveyard slot—of today’s sitting.

Clause 37 cropped up in the Chamber, earlier today, during Treasury questions, when the hon. Member for North-West Leicestershire (David Taylor) raised a concern about whether the clause would make it easier for businesses to participate in tax avoidance schemes by being able to engage in transactions that move businesses offshore without letting the Treasury know. He asked whether we were in danger of making it easier for people to engage in the sort of transactions about which the hon. Member for Southport seemed to be concerned during the previous debate. In a sense, the arguments of the hon. Member for North-West Leicestershire have been lent some support. Tax advisers have told me that they welcome clause 37 and schedule 17, which must instantly cause those considering such matters from the other side of the debate to think, “There must be something here to think about. Will this be a charter for encouraging such activity?”

My understanding is that the existing regime for Treasury consent will be swept away. However, one issue that comes up in the correspondence and debate on this matter is whether the regime that the Treasury is considering will be effective in helping businesses to comply and in helping to promote certainty for taxpayers. The existing regime had a set of general consents—document M03/88—and if someone is taking part in one of those transactions, there is no requirement to notify the Treasury or to gain its consent. Clause 37 paves the way for the repeal of that legislation. We now have a new set of reporting requirements for certain transactions exceeding £110 million. On one level, the Government are saying that they will remove the Treasury consent regime and that there will be no replacement for the general consents. However, HMRC has a regulatory power under the Bill to designate excluded transactions, augmenting the list of excluded transactions in paragraph 9 of schedule 17. Until HMRC exercises its powers though, taxpayers will have to report more transactions than at present.

The list of transactions in paragraph 9 is not as broad as that in the current general consents, and there is a concern that many common commercial situations will need to be reported, resulting in a greater compliance burden. That runs counter to the Government’s aim and to the expectation of the hon. Member for North-West Leicestershire and others.

I have a short list—you will be pleased to note, Mr. Atkinson—of those existing consents that people have said they would like to see under the new regime. They include the issue of shares by a non-UK company to a UK company, the issue of shares by non-UK companies to a third party, rights issues, the issue of debentures and the issue of shares by Commonwealth countries. I would be grateful for the Minister’s thoughts as to where the excluded transactions regime will get to.

There is also an issue relating to private equity funds and limited liability partnerships. The new rules, in paragraph 5 of schedule 17, require reporting by UK bodies corporate that control non-UK companies. However, in certain situations a UK body corporate might be considered to control non-UK companies, but reporting might be considered inappropriate. For example, many private equity structures include a UK body corporate such as a limited company or a limited liability partnership as the fund’s general partner. If that fund holds UK investments, the general partner might be required to report transactions over which it has little or no influence. There could be an amendment to the effect that bodies corporate that are general partners of collective investment schemes, as defined by the Financial Services and Markets Act 2000, could be exempted. That would avoid inappropriate reporting requirements.

It would help if the Minister gave a bit more background to the proposals in clause 37 and schedule 17, to provide a clearer understanding of how he expects the new regime to work. How can he reassure his hon. Friends that this is not a tax avoidance charter and at the same time give comfort to businesses that it will not lead to a much more onerous regime?

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills) 6:15 pm, 9th June 2009

Clause 37 introduces schedule 17, which removes the existing Treasury consents legislation—dating from 1951—and replaces it with a modernised post-transaction reporting requirement. The existing rules are out of date and are not in line with current business practice. We are committed to having information available for the detection and countering of tax avoidance. There is absolutely no weakening of our resolve on that front, which is reflected here, and which I will set out perhaps in more detail when we debate the amendments tabled by the hon. Member for Southport.

We want to maintain a corporate tax regime that keeps pace with how businesses operate today, so the new reporting requirement will apply only to material from transactions that pose a significant risk of tax avoidance, with a value in excess of £100 million. That will give HMRC the information that it needs to detect tax avoidance, and, as we will discuss when we come to those amendments, by targeting the report the administrative burden for businesses is reduced.

The new rules remove the need to apply to the Treasury before entering into commercial transactions. That decision will be left to businesses, making it easier for them to operate. The administrative burdens will be significantly reduced by introducing the £100 million threshold, reducing the number of reportable transactions and reducing the amount of information that needs to be reported.

We are also removing the rather outdated criminal penalty that was attached to the Treasury consents rules. In response to representations, we have extended the exclusions to include a number of the general consents that are available in the Treasury consents rules. The draft legislation published in December included a number of exclusions from the new reporting requirement in addition to the de minimis limit of £100 million and in the consultation it became clear that without additional exclusions, the rules could generate reports that were of little value to HMRC. We have added a number of further exclusions to the draft regulations, which are essentially a replication of the existing general consents—although we have removed some of the more dated elements.

In drafting the regulations, we have deliberately copied the language because it is already familiar to businesses and, together with a new exclusion for cash pooling arrangements, these measures will address the concerns expressed about recurring transactions. The draft regulations will be published on the HMRC website. In that way, we have both provided the safeguards against avoidance, which were rightly of concern to my hon. Friend the Member for North-West Leicestershire, the hon. Member for Southport and, I imagine, to Conservative Members, while significantly easing the regulatory burden on businesses in a helpful way. We have got that balance right, and I hope that the Committee as a whole will work on that.

Question put and agreed to.

Clause 37accordingly ordered to stand part of the Bill.