The Government propose to introduce legislation in the 2007 Finance Bill to take effect from 22 November 2006 in response to disclosures of schemes which undermine the effectiveness of legislation enacted in the 2006 Finance Act.

The legislation will prevent companies from exploiting a mismatch in definitions of ownership of a company or manipulating the balance sheet value of assets in order to reduce or cancel the effect of the Sale of Lessor Companies legislation.

Schedule 10 of the 2006 Finance Act targeted sales to loss making group of lessor companies that were about to become tax profitable. The sales turned an acceptable tax timing advantage into an unacceptable permanent deferral of tax. The legislation gave a clear signal that this was not acceptable. The disclosures show that some groups are willing to enter into contrived schemes in order to side step the effect of the 2006 legislation.

The Government have decided to act promptly in response to the disclosures to emphasize that attempts by companies to avoid paying their fair share of tax are not acceptable.

A copy of today's HMRC technical note giving the relevant background to this measure has been deposited in the Libraries of both Houses and is accessible on the HMRC web site at http://www. hmrc.gov.uk