I have a couple of questions about clause 69, which takes us into the rather arcane and complicated world of the taxation of goodwill and intellectual property. The clause seeks to deny tax relief for deductions derived from the amortisation of goodwill arising and recognised for accounting on the purchase of a business from an unrelated party.
As I understand itI am sure that the Minister will correct me if I am wrongthe perceived mischief that these new provisions aim to thwart is transactions involving the sale of businesses between related parties, with the recognition of goodwill on acquisition by the purchaser. The purchaser would then no doubt claim deductible amortisation for tax purposes by writing down the purchased goodwill. I know that there is a view that the clause is unnecessary because the goodwill would not exist in the accounts or for tax purposes prior to the acquisition; that internally generated goodwill is prohibited by accounting standards and therefore the clause is not necessary.
I would be grateful if the Minister could say why the clause is necessary. It has a particular effect where the transaction involves a purchaser and the seller that are related. Are there concerns that the same mischief could occur between unrelated parties? To reiterate, is the clause really necessary at all? I think that this is one of those cases where the provision is there for the avoidance of doubt. However, if the Minister will elaborate on that point, we shall be grateful.
Clause 69 introduces legislation to confirm the tax treatment of goodwill by the corporate intangible fixed asset regime. The rules for the taxation of corporate intangible assets were introduced in the Finance Act 2002 after widespread consultation and they were widely welcomed by businesses. However, some companies acquiring a business carried on prior to 1 April 2002 by a related party have been incorrectly claiming relief for goodwill where none is available.
As the hon. Gentleman was suggesting, that is the reason for changing the rules. The legislation is being clarified to put what HMRC believes to be the correct interpretation of the law beyond doubt, because some people have doubted it. HMRC does not accept that such relief as has been claimed is, in fact, available. The regime treats goodwill of a business carried on by a related party prior to 1 April 2002 as a pre-existing asset. It is brought into the regime only if and when the business is acquired by an unrelated third party.
HMRC will continue to challenge past claims that some companies have tried to make for relief, if necessary through the courts. To complement HMRCs operational response to the problem, the clause confirms that the corporate intangible asset rules function as intended and it aims to put beyond doubt the correct interpretation.
Clause 69 should safeguard up to £2 billion worth of future tax revenue spread over the next 20 years, and I commend it to the Committee.