Finance Bill

The amendments and new clauses in this group all concern tax avoidance. For the tax system to be effective everyone needs to pay their fair share. Tax avoidance damages the ability of the tax system to deliver its objectives, imposes big costs on society and shifts a greater burden of tax on to taxpayers who do comply with the rules. So the Government are committed to continuing to move quickly and effectively to tackle tax avoidance in all its forms. What I shall do, if I may, Mr. Speaker is speak to the Government new clause and amendments in this group and seek to catch your eye later to respond to comments made by others when they discuss the other new clause and amendments. New clause 8 counters an avoidance scheme that has been notified to Her Majesty's Revenue and Customs. The scheme exploits corporation tax "terminal loss relief" rules that allow losses arising in a trade in the 12 months prior to cessation to be carried back and set off against profits made in the previous three years. The scheme works by artificially engineering a deemed cessation of trading, which allows the company to access the relief in circumstances not intended by Parliament, and it could be used by a large number of companies and it poses a risk of significant loss of revenue. In order to stop companies exploiting the scheme and, thus, to protect the Exchequer, I made a written ministerial statement on 21 May announcing our intention to introduce this legislation. The new clause addresses situations in which there has not been, in any real sense, a cessation of the trade, but where it is claimed that the cessation occurs as a result of the trade being transferred to a person outside the scope of corporation tax. The new clause is targeted only at avoidance and applies only where it can be established that the reorganisation concerned is part of a scheme or arrangement, one of the main purposes of which is to access terminal loss relief. In such circumstances, terminal loss relief will not be available to the transferring entity. The new clause provides vital protection to the Exchequer from wholly artificial avoidance schemes and does so in a targeted and proportionate manner. I therefore ask hon. Members to ensure that the new clause stands part of the Bill. Government amendments 41 and 42 seek to ensure that clause 59, which contains a provision to counter an avoidance scheme that abuses the double taxation relief rules, does not hit any unintended targets. Following representations, Government amendments were tabled in Committee that were intended to ensure that the clause would not have an unintended effect in normal commercial situations. The amendments would have provided that the clause applied only to payments made under the laws of a territory outside the UK. These amendments reflected agreement that HMRC reached with industry legal experts and had the advantage of following existing legal precedent that applies for the purposes of controlled foreign company legislation. The Government amendments would have covered the overwhelming majority of cases in which refund of foreign tax might arise from commercial contracts. However, after those Government amendments were tabled, further representations were received which showed that they may not go far enough to ensure that the clause does not hit any unintended targets. Although these are unusual circumstances, I said during the course of our debate on this clause in Committee that it is right that we should take account of them and that I would return to this matter with further Government amendments on Report—and I have done so. During the Committee debate, I made it clear that I accepted the principle of the similar Opposition amendments, but that I wanted to reflect further on the issue to ensure that any amendments were technically correct. The new Government amendments contain one minor adjustment, compared with the Opposition amendments in Committee, in that they refer to a "tax authority" rather than a "taxing authority". This is because a taxing authority might be seen as the legislative body which imposes the charge to tax, rather than the authority that assesses and collects the tax, and makes any necessary payments or repayments—a small but necessary change. The amendment has also been duplicated to cover the situation where the taxpayer is seeking a deduction for foreign tax, as well as where double tax credit relief is sought.