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Rob Marris (Wolverhampton, South-West) (Lab): I seem to recall that when we discussed social security pension lump sums on Tuesday, the hon. Gentleman was arguing for some flexibility to be built into the legislation, in case people took partial pensions. I shall not rehearse that debate now, Mr. Cook, but the hon. Gentleman's comments today seem contradictory. Even if the regime before us today is passed, it will be applied only if Her Majesty's Revenue and Customs issues a notice. Customs and Revenue cannot just drop on people; there has to be an active process. In a sense, that flexibility is already built into the legislation.
Mr. Hammond: The hon. Gentleman is precisely wrong, but he has identified one of our key concerns about the arbitrariness of the regime. It is drafted extremely widely. On the most extreme interpretation, it could catch virtually all US investment into the UK, and we know that the Government do not intend that. They have created a regime of notice issuing for the Revenue, but there will be discretion in the way that
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notices are issued; the Revenue will consider individual cases and form a view. In later amendments, we will come to precisely how those notices are to be dealt with.
The hon. Gentleman's analogy with our debates on clause 7 and following clauses is entirely wrong. Clause 7 is consequential legislation that amends the Tax Acts to deal with a type of income that has never before been envisaged—deferred pension lump sums. There was a danger that not making that amendment might result in those pension lump sums not being taxable—or in their being taxed quite differently from how the Government intended, certainly differently from that which the consensus in Committee suggests is the right way to go. That legislation was consequential; my point then was that it would be as well to draft it widely enough to accommodate changes in the principle legislation that it supports.
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The provisions on arbitrage deal with quite a different situation. I am somewhat surprised that the hon. Gentleman, who is a lawyer by training, appears to be arguing for a broad drafting of legislation so that the Government can be flexible about how they target taxpayers. If the hon. Gentleman thinks about what he has said, he will see how damaging that would be to the UK investment climate. Businesses making investment decisions will typically look at their post-tax returns to an investment over a relatively long time—the longer the better the Chancellor would say, as he likes the long term and not the short term—and any uncertainty is bound to lead them to take a worst-case approach in their modelling.
Stephen Hammond (Wimbledon) (Con): My hon. Friend's point is better made when one reads through the legislation, difficult though that is for us all, because one then sees that it is drafted so widely that almost every hybrid tax-planning arrangement seems to be caught by this chapter and this clause. It would help to clarify things if the Government provided the Committee with clear examples of arrangements that are not caught by the clause.
Mr. Hammond: My hon. Friend is right. I see that the Paymaster General has some complicated diagrams on her table; I might have some even more complicated ones to wave back at her. The Government's answer to my hon. Friend's charge will be that there has to be a UK tax advantage before any of the legislation bites. I suspect that much of today's debate will hinge on when a UK tax advantage arises and how an inward investor can be certain that his arrangements will not be deemed to have given rise to a UK tax advantage. Although it might seem easy to determine whether there has been a UK tax advantage, I hope to convince the Committee that it can be an extremely complex question.
Rob Marris: I rise to correct the hon. Gentleman gently on his remarks about my intervention. If he looks at the record, he will see that I did not put forward any proposition, but merely suggested that his remarks were contradictory.
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Mr. Hammond: On the specific point, the hon. Gentleman is wrong: my remarks were not contradictory. If he does not mind, I will sometimes extrapolate from what his comments as he does from mine.
Mr. Brooks Newmark (Braintree) (Con): I do not want to get bogged down in language, but does my hon. Friend agree that there is a difference between flexibility and what the Conservatives are concerned about, which is uncertainty? A lot of the Bill's drafting creates uncertainty for the financial community, and although there is sometimes a need for flexibility, our concern is more driven by the uncertainty arising from the legislation.
Mr. Hammond: My hon. Friend is absolutely right. We need only to listen to Ministers' words. Flexibility is good—the Chancellor used the word goodness knows how many times last night—but uncertainty is bad in almost all circumstances, certainly in anything to do with business.
I anticipate that there will be a certain obstinacy on the Government's part in response to my suggestion that it might be wise to withdraw this chapter of the Bill and return to the subject later. Notwithstanding our principle view that that should be done, we tabled some amendments that will allow us to discuss ways of ameliorating some of the more damaging effects of the legislation. We did that partly to test the Government on where they stand on various issues and how they see the legislation working, and partly to try to redress the balance in favour of the taxpayer where it seems that this legislation is badly skewed towards the revenue authorities in a way that is frankly out of kilter with much of our tax legislation.
The group of amendments is large. I shall pick up certain themes and say something about each one in connection with the amendments that relate to it. I say again that the subject is complex, notwithstanding the assistance we have received with the drafting of amendments, for which I am very grateful. Given the technical detail, I acknowledge that some of the amendments will be imperfectly crafted, but I hope that the Paymaster General will take the essence of the question being asked in the amendment and deal with that.
The first sub-group of amendments is designed to attack the move towards giving very wide administrative discretion to officials. It is proposed that the Commissioners for Her Majesty's Revenue and Customs—in old money, Inland Revenue officials—will issue a notice to a company when they believe that it ''is or may be'' within the scope of this legislation. To some extent, that flies in the face of the principle of self-assessment, which is that the taxpayer appraises his own affairs and makes a statement on them, and the Revenue looks at it in due course. We, and professional practitioners, have concerns about the scope that such a notice provision will give the Revenue for mounting what, in the jargon of the industry, are known as fishing expeditions—serving notices on the taxpayer, in effect placing the onus on him to demonstrate that he is not within the scope of the legislation and is not required to comply.
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Amendments Nos. 15, 17 to 20 and 22 to 28 amend the Bill so that it would be the special commissioners who decided whether to issue a notice after finding, on the balance of probability—that is on the lower, civil standard of proof—that conditions A to D set out in the clause ''are or may be'' satisfied, following an application by the commissioners to the special commissioners. Instead of officials from the Revenue, sitting in an office, deciding that company X is guilty and should be issued with a notice, we propose that the commissioners should prepare a case explaining why they have formed a reasonable view that company X is or may be within the scope of the legislation. I shall come back to the term ''is or may be'' under another group of amendments. The commissioners would then present that case to the special commissioners, who sit as what we might characterise as a tribunal. The special commissioners will listen to the commissioners' arguments and those of the taxpayer and come to a decision as to whether it is appropriate to issue a notice. That is the difference between a police officer signing a warrant and a police officer applying to a judge, who considers the facts and then issues a warrant. The amendments would create proper procedure at first instance. In the absence of such a procedure, to get a hearing, the taxpayer would have to go through the appeal procedure, which is itself not at all clear; we will come to that under groups of amendments to later clauses.
The amendments would reassure the taxpayer community, in particular the foreign investor community, which, for understandable reasons, is quite nervous and unsettled by a proposal in a developed, advanced country for a regime that gives very wide discretion to Treasury officials to issue what is in effect a tax levy—a notice indicating that someone falls within a very widely drafted tax charge. Many corporations are used to operating in very different jurisdictions from that of the United Kingdom. Frankly, they are used to getting this sort of treatment in less well developed jurisdictions. It is not the sort of treatment that typically encourages and supports investment. The amendment would reassert an important principle of our tax system, which I hope the Paymaster General will be keen to defend: that if there is doubt, the matter should be resolved in favour of the taxpayer, not of the tax-gathering authorities.
Amendment No. 15 makes the relevant change in subsection (1) of clause 24, which deals with deduction cases, so that the notice may be issued by the special commissioners, on the application of the commissioners, where the special commissioners are satisfied, on the balance of probability, that the company in question complies with conditions A to D. Amendment No. 20 makes the same change to the operative subsection of clause 26, which deals with receipts cases—investments made outwards from the UK. The remaining amendments—amendments Nos. 17, 18, 19, 22, 23, 24, 25, 26, 27 and 28—are consequential, and simply change references elsewhere in the chapter from commissioners to special commissioners.
I hope that the Paymaster General will carefully consider our proposals. The Government have nothing
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to fear from the amendments, the taxpayer has a great deal to gain in transparency, and UK plc has a great deal to gain in the resulting beneficial impact on the investment climate. It would send a message to people who have already expressed their serious concern about this part of the Bill.
Amendments Nos. 16 and 21 would tighten the rules. As I said, clauses 24 and 26 allow a notice to be served by the commissioners if they consider that conditions A to D
''are or may be satisfied in relation to a transaction''.
I ask members of the Committee to focus their attention on the words ''are or may be''. Those are very different tests; ''are satisfied'' is a perfectly acceptable test, but ''may be satisfied'' is a different order of test altogether, and is totally unsatisfactory. For the Revenue commissioners to consider that they are satisfied means that they need to satisfy themselves that the qualifying conditions do apply in the case, but for them to consider that the conditions may be satisfied merely requires them to be sure that they are not necessarily not satisfied. So they may be satisfied unless there is clear evidence that they cannot be satisfied.
Let me illustrate my case. The Leader of the Opposition may be outside the Room. The hon. Member for Wolverhampton, South-West (Rob Marris) is clearly not outside the Room—
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