Clause 23 amends legislation that applies to debts that are held by a connected company. It introduces a targeted anti-avoidance rule and a retrospective provision in relation to arrangements designed to work around existing rules. During my remarks, I will address the amendment tabled by my hon. Friend the Member for Amber Valley.

It may help the Committee if I say a word or two about the background. Normally, a company is taxed on the commercial profit that arises when it must pay back less than the amount that it borrowed, but special rules apply to connected companies. In such cases, a tax charge arises when a company connected to the borrower buys the debt, or when debt is held between companies that become connected. Those rules were amended in the Finance Act 2010 to block schemes under which banks bought back their own issued debt that was trading at a discount in the market. In other words, they could buy their own debt for less than the amount they originally borrowed without paying tax on the difference.

At the time, the Government made it clear in two written ministerial statements that they expected such profits to be subject to corporation tax. Despite those clear statements, a bank entered into a scheme using contrived arrangements that, again, sought to ensure that the profit on the buy-back of its own debt was not subject to corporation tax, and a substantial amount of  tax—around £300 million—was avoided. In a written ministerial statement on 27 February, I announced amendments to the rules so that companies cannot get round the legislation in the future.

The measure will take effect retrospectively to 1 December 2011 to ensure that banks and any other company that use this or a similar scheme after that date will be taxed on the transaction as it should be. The hon. Member for Newcastle upon Tyne North asked why the specified date was 1 December. That is essentially the first date on which HMRC was aware that the scheme or similar schemes were being used. The hon. Lady said that the scheme was notified on 1 December, but that is not the case. It was notified in February, but its use dated back to 1 December, so that is the date in the clause.

We did not take this action lightly. The scheme involves a large potential tax loss. There is a history of abuse of debt buy-back, as is shown by the written ministerial statements, and the bank in question has adopted the code of practice on taxation of banks, under which it commits not to engage in such tax avoidance schemes.