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Mr. Philip Hammond: I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 75, in clause 26, page 24, line 35, after '(9)', insert 'or (9A)'.
No. 76, in clause 26, page 24, line 39, at end insert 'or'.
No. 77, in clause 26, page 24, line 41, leave out from 'period' to end of line 45 and insert—
'(9A) This subsection applies to an amount that is taken into account in determining the debits and credits to be brought into account by a company for the purposes of Chapter 2 of Part 4 of FA 1996 as respects a share in another company by virtue of section 91A or 91B of FA 1996 (shares treated as loan relationships).'.—[Dawn Primarolo.]
Question proposed, That the clause, as amended, stand part of the Bill.
Mr. Philip Hammond: I have a couple of questions for the Paymaster General. Would the wording of subsection (12) have the same meaning and, perhaps, be clearer if it read that for the purposes of this section a payment is a qualifying payment in relation to a company if and only if it constitutes a contribution to the capital of the company? That is clearly what the guidance notes suggest. A possible and initial interpretation was that it possibly added to the scope, and certainly defined the scope of a qualifying payment, not necessarily excluding any other type of payment. Clarification by the Paymaster General would be helpful.
Can the Paymaster General clarify whether a contribution to the capital of the company, which the guidance notes suggest means an increase in the capital of the company, is to be read narrowly in terms of the share capital of the company, in a straightforward, conventional sense? In particular, can she clarify that it is not the case that any increase in profits that increases shareholders' funds by way of retained profit could be argued to be an increase in capital? I think that she will have no difficulty giving me that assurance, but I would be grateful.
The broader question underlying clause 26 that concerns us is how much these structures that are now being attacked provide UK-based investors with an advantage that overseas investors already have when competing for third country outward investment opportunities. I understand entirely that Treasury Ministers do not like structures that allow the creation of a UK tax advantage. However, in the world we live in, if our companies are competing to make investments in third countries where multinational competitors have such tax advantages, and we deny them to our companies, we have to accept that there will be consequences, in terms both of the success of UK-based companies and of the attractiveness of the UK as a location for such multinational outward investors.
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The Paymaster General will see that legislation such as that on the substantial shareholding relief, which was introduced to encourage companies to use the UK as a base for head office operations and holding operations for overseas subsidiaries, tends to pull in the opposite direction from the thrust of the clause. Will she tell the Committee, with hand on heart, that the clause will not act as a deterrent to multinational companies to base their regional operations for outward investment in the regions of the United Kingdom? The UK has a significant relative advantage in this important are as a result of the English language and of its sophisticated capital markets.
The Paymaster General might like to close the opportunity to obtain interest relief that she feels is unjustified. However, the question is not whether it is justified, but whether our competitors are able to obtain that relief in other jurisdictions and whether we are putting ourselves at a disadvantage by doing so. That is my concern.
Dawn Primarolo: On the first point, the answer is no. If the relief is something else, that does not mean it stops being a contribution to capital.
I hesitate before dealing with the hon. Gentleman's other points. In opposition, I sat on three Finance Bills that proposed wide anti-avoidance measures. Conservative Ministers rightly argued that we need a fair tax system in the UK for all taxpayers.
I have never heard a Conservative spokesperson argue that tax avoidance gives the United Kingdom a competitive advantage, so I am perplexed that the hon. Gentleman keeps returning to the matter. He supports the disclosure rules and agrees that action should be taken under them. He prefers the rules to be targeted whenever possible, as they are under the clause, and he accepts the difficulties of purpose tests when that cannot be achieved. He has been reassured that appeal rights are in place, that companies will be properly notified and that innocent parties will not be hit, yet still he argues that allowing avoidance somehow ensures that our economy is competitive. I do not agree with him and do not propose, if he raises the matter again, to respond to his points.
Question put and agreed to.
Clause 26, as amended, ordered to stand part of the Bill.
Clause 27
Corporation tax starting rate and fraction for financial year 2004
Question proposed, That the clause stand part of the Bill.
Mr. Philip Hammond: Let us see whether we do any better on this clause, Mr. Cook.
Will the Paymaster General clarify why income arising under subsection (2) is chargeable under case 6 of schedule D? Why is it not chargeable under case 3?
Dawn Primarolo: Because case 6 is the relevant place if we are to make the legislation work.
Question put and agreed to.
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Clause 27 ordered to stand part of the Bill.
Clause 28
Notices under sections 24 and 26
Amendment made: No. 29, in clause 28, page 26, line 24, leave out 'have been reasonably' insert 'reasonably have been'.—[Mr. Philip Hammond.]
Question proposed, That the clause, as amended, stand part of the Bill.
The Chairman: With this it will be convenient to discuss the following:
New clause 1—Advance clearance—
'(1) This Chapter shall not have effect in respect of any company falling within either section 24(1) or section 26(1), in any case where the commissioners for Her Majesty's Revenue and Customs have on application of the company notified the company that the Board are satisfied that the transaction does not have a main purpose of achieving a UK tax advantage.
(2) Any application made under subsection (1) above shall be in writing, delivered either by post or by electronic mail, and shall contain particulars of the operations that are to be effected and the Commissioners may, within 30 days of the receipt of the application or of any further particulars previously required under this subsection, by notice require the applicant to furnish further particulars for the purpose of enabling the Commissioners to make their decision and if any such notice is not complied with within 30 days or such longer period as the Commissioners may allow, the Commissioners need not proceed further on the application.
(3) The Board shall notify their decision to the applicant within 30 days of receiving the application or, if they give a notice under subsection (2) above, within 30 days of the notice being complied with.
(4) If the Commissioners notify the applicant that they are not satisfied that the transaction in question does not have a main purpose of achieving a UK tax advantage or do not notify their decision to the applicant within the time required by subsection (3) above, the applicant may within 30 days of the due date for a decision in accordance with this section require the Commissioners to transmit the application, together with any notice given and further particulars furnished under subsection (2) above, to the Special Commissioners and in that event any notification by the Special Commissioners shall have effect for the purposes of subsection (1) above as if it were a notification by the Commissioners.
(5) If any particulars furnished under this section do not fully and accurately disclose all facts and considerations material for the decision of the Commissioners or the Special Commissioners, any resulting notification of a decision by the Commissioners or Special Commissioners shall be void.'.
New clause 2—Right of appeal—
'Appeals against a notice issued by the Commissioners of Her Majesty's Customs and Revenue under section 24 or section 26.
(1) Any company to whom a notice has been given under section 24 or 26 may within 30 days by notice to the Special Commissioners appeal on the grounds that section 24 or section 26, as appropriate, does not apply to the company in respect of the transaction or transactions in question, or that the adjustments directed to be made are not appropriate adjustments.
(2) If the Commissioners or the company are dissatisfied with the determination of the Special Commissioners the company or the Commissioners may, on giving notice to the clerk to the Special Commissioners within 30 days after the determination, require the appeal to be re-heard by the tribunal, and the Special Commissioners shall transmit to the tribunal any document in their possession which was delivered to them for the purposes of the appeal.
(3) Where notice is given under subsection (2) above, the tribunal shall re-hear and re-determine the appeal and shall have and exercise the same powers and authorities in relation to the appeal as the Special Commissioners might have and exercise, and the determination of the tribunal thereon shall be final and conclusive.
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(4) On an appeal under subsection (1) and (3) above the Special Commissioners or the tribunal shall have power to cancel or vary a notice under section 24 or section 26 of this Act, or to vary or quash an assessment made in accordance with such a notice, but the bringing of an appeal or the statement of a case shall not affect the validity of a notice given or of any other thing done in pursuance of those sections pending the determination of the proceedings.'.
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