Clause 33 - Company distributions

Part of Finance Bill – in a Public Bill Committee at 9:00 am on 14 June 2012.

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Photo of David Gauke David Gauke The Exchequer Secretary 9:00, 14 June 2012

Mr Sheridan, it is a great pleasure to serve under your chairmanship this morning and to speak about the clause, which provides a certainty on the tax treatment of distributions in the form of transfer of assets and liabilities that is welcomed by companies.

The changes ensure that transfers between UK resident companies can be treated as income distributions for the purposes of corporation tax. Such transactions are sometimes referred to as distributions in specie. Tax treatment will become aligned with that which usually applies when a non-UK resident company is involved in a transfer. We have also taken the opportunity to clarify distributions rules where they overlap in particular respects.

The changes made by the clause will repeal legislation that prevents transfers of assets between UK resident companies from being treated as income distributions. Provided that such transactions otherwise fall within the scope of the distributions legislation, they will be treated as income distributions and will in most cases be exempt from corporation tax. The changes will also ensure that the confusing overlap in the scope of the two different definitions of the term “distribution” is removed. They will affect companies for which distribution treatment is currently given through HMRC guidance.  We do not expect any Exchequer impact, and hon. Members should note that the taxation press have welcomed the clause.

I shall try to answer some of the questions asked by hon. Members. First, the measure affects only transfers between companies in the same group, so there will be no impact on dividends paid to shareholders, including trusts. Will there be any HMRC costs related to the provision and will HMRC have the capacity to deal with it? This is a simplification measure. There will be less of a burden on HMRC, because fewer clearances will be needed, so if anything, the provision will reduce the demand placed on it. On cost, there is no tax impact as such. Relief is currently available through guidance, but the clause makes it statutory. There are no implications related to distributions for non-UK companies. HMRC does not gather information on the number of transfers that will be affected by the measure, so it is not possible to provide an answer to that question. Finally, I am sorry to disappoint the hon. Member for Bassetlaw, but no EU implications relate to the measure.

I hope that is helpful to the Committee. The clause will provide certainty on how corporation tax distributions legislation will apply to transfers of assets and liabilities between UK resident companies, and I hope that it will stand part of the Bill.