The clause relates to de-grouping charges and amends measures in the Corporation Tax Act 2009 that apply to groups of companies. It will amend the de-grouping provisions in those sections of the 2009 Act that apply when a company to which a loan relationship or derivative contract has been transferred ceases to be a member of the group.
The stated policy aim is to support the Government’s objective of establishing
“a simpler, more certain and more robust tax system.”
In technical terms, the clause will repeal provisions in sections 345, 346, 631 and 632 of CTA 2009 that have the effect of restricting the de-grouping charge so that it brings into account credits and certain debits only in limited circumstances. Under the changes, where a transferee company ceases to be a member of a group on or after 1 April 2014, the rules will apply to bring into account both credits and debits for taxation purposes.
Again, the background to the clause relates to group continuity rules, which ensure that loan relationships and derivative contracts are transferred between two companies in the same group at a notional carrying value —in other words, their notional balance sheet value at the time of transfer—and on a tax-neutral basis, in other words without crystallising losses or bringing gains into the charge. Profit or loss on the loan relationship or derivative is not brought into account for tax purposes until the instrument is finally disposed of from the group.
Where a transferee company ceases to be a member of the group within six years of the date of transfer, a de-grouping charge is incurred, which brings into account an amount equal to the difference between the notional carrying value and the fair value of the loan relationship or derivative contract for tax purposes. However, in most cases the de-grouping charge applies only in limited cases, and only to bring credits, not debits, into charge. At Budget 2013, the Government announced a review of the legislation governing the taxation of corporate debt—the loan relationships—and derivative contracts. The aim of the review was to make the legislation simpler, more certain, and more resistant to abuse.
Once again, we are not seeking to remove the clause from the Bill, but there are a couple of points that I wish to make, and I have some questions for the Minister. As I said, the clause extends the de-grouping charge to cover both credits and debits on loan relationships and derivative contacts in the event of de-grouping, by removing a number of the subsections in CTA 2009. The Government are right to take action to restrict the scope for tax avoidance, especially given that the Exchequer has potentially lost out on significant sums; we have already heard some comment about that. Additionally, given the complexity of the taxation regime, any efforts to introduce greater simplicity and transparency would, of course, be welcomed.
However, the Government have stated in their policy note that the economic impact of the measures, including on the Exchequer, will be negligible; will the Minister confirm that? If the impact is negligible, can she confirm that she does not expect the measures to raise any additional revenue for the Exchequer? Given the discussions that we are having about the success or otherwise of the tax avoidance measures and about trying to rein in tax avoidance, can she explain whether the clause has any tangible impact?
I heard what the hon. Member for Daventry said about the full report of the Public Accounts Committee, but none the less, one of the things that came through from the report was the issue of trying to gather intelligence on the full cost of tax avoidance schemes. Can the Minister say whether it is her intention to undertake any more of that activity and, if so, to present the results to Parliament?