I beg to move Amendment 21, in schedule 6, page 58, line 5, after ‘directly’, insert ‘or indirectly.’.

The amendment looks at the limitation of group relief based on the proportion of voting power held by a company. In tabling probing amendment 21, which simply adds the words “or indirectly” after “directly”, we pose the question as to why there should be limitations on group relief based on the proportion of voting power held by a company. It has been suggested that the schedule as drafted, which includes only directly possessed companies, could deny consortium claims in many legitimate circumstances and possibly in every case where there is a holding company.

We have looked at Budget note BN14, which has no explanation as to why the measure is restricted to directly possessed holdings. I would be grateful if the Minister clarified why that requirement is being introduced and set the Committee’s mind at rest as to whether legitimate claims would be excluded if the provision was to be accepted as it currently stands in the Bill.

I will illustrate my point with another example. I apologise in advance for its complexity, but it is unavoidable if I am to try to get the point across and get on the record how this would work in practice. Suppose that company A is a member of a consortium and owns 50% of company B, which is a holding company, and  company B owns 100% of company C, which is a trading company. Company A wants to claim losses from company C.

Even if all the other conditions for the claim are satisfied, the new condition in section 143(3)(d) will arguably always deny a consortium claim, because the claimant company, company A, will not directly possess—as the wording in the schedule as drafted states—any of the voting powers of the surrendering company, company C. The same issue arises when A is the surrendering company and C is the claimant company, hence this probing amendment, which states that indirectly owned companies should be included in the provision.

The Minister may argue that section 153(3) of the Corporation Tax Act 2010 deems the consortium members to possess directly already the voting power in company C. It is by no means clear, however, that that would be accepted if it was subjected to legal challenge. I would suggest, therefore, that rather than using the term “directly possessed”, the schedule should use “directly or indirectly possessed”, so that the voting power can be traced through the holding company.

Alternatively, “directly possessed” should be explicitly defined, with a reference to section 153(3), to put the point beyond doubt. I would be grateful if the Minister clarified whether he has taken legal advice on that point, and whether he believes that the provision as currently drafted serves the purpose that it is intended to serve.