Miss Melanie Johnson: In proposing amendments Nos. 45 and 46, the Opposition have made some play of the need for a clearance system to facilitate the operation of the regime introduced by clause 83. I am not clear on whether they think that the new regime is inoperable without a clearance system or whether such a system would slightly improve its workings. In either case, the Opposition's view is misconceived. The regime is not unworkable without a clearance system, and such a system would not improve the way in which the new rules work. In fact, it would place new burdens on business and reintroduce the bureaucracy that we have been so keen to avoid. I believe that the hon. Gentleman is also keen to avoid that.
Let me explain the situation in more detail. The clause is intended as a deregulatory measure and will cut red tape. It responds to calls that we have received to build on the reforms that we announced last year by lifting withholding tax on payments made between companies where the payment would be taxed anyway in the hands of the recipient. In making that change, it has always been the Government's view that the new system should be as light-handed as possible. That is why the new rules do not set an objective test, which would often be difficult for a paying company to verify. Instead, they simply require a paying company to act on its reasonable belief that the conditions for gross payments are met. A clearance system would place new burdens on business and the Revenue.
To protect the Exchequer, we have consistently taken the view that if it turned out that the tax was not deducted when the recipient was not in the categories entitled to gross payment, the Revenue should be able to recover its tax from the payer. We have recognised that payers would want to take steps to protect their position in the event of a Revenue claim for tax, but we believeand have been toldthat it will be perfectly possible for payers to do so by a system of indemnities as part of their normal contractual arrangements.
The Opposition's proposal to include a clearance system therefore runs completely counter to the clause's intention. It would not match the deregulatory objectives of the new regime, but would place significant burdens on the Revenue that we had not anticipated as part of the measure. It would also place burdens on business, because if a clearance system were instituted, everyone would feel bound to use it, perhaps incurring additional professional charges in the process.
A clearance system cannot give the sort of guarantees that the Opposition think it could. For example, if paying companies seek comfort from the Revenue because they have doubts about whether the recipient is the beneficial owner of the income to be paid, the Revenue will often be unlikely to have access to all the information that it needs to answer those doubts. As we announced on Budget day, we shall continue to work with the markets in developing guidance for the operation of the new rules. We are consulting on the need for and nature of any further guidance that the Revenue should produce. In that way, the Government can facilitate the regime's operation.
The amendments seem to contain flaws and would not achieve the Opposition's objectives. The result is that section 349D would apply in some circumstances when the Opposition wanted to disapply it; in other circumstances, it would not apply when the Opposition would presumably agree it should apply. For all those reasons, the proposals are unsatisfactory. I hope that I have explained the difficulties and that the Committee will reject the amendments.
Mr. Flight: We claim not that the clause is inoperable without the amendment but that it is unreasonable for there to be no clearance system or some form of safe harbour. If a clearance system is not acceptable, could the Minister say more about the type of safe harbour guidance that the Revenue intends? It would be unreasonable to place paying companies at risk of having to account for tax when they have taken reasonable steps to check that recipients were within the charge to UK corporation tax. While it may be wrong and unrealistic to prescribe exactly what evidence a paying company should obtain, there should surely be some form of safe harbour guidance and companies that have made specified checks should be safe from potential subsequent claims for tax and penalties. Whatever guidance the Revenue produces needs sufficient status to give that safe harbour. Companies within the safe harbour should be safe from having to account for tax and from penalties. If that approach were taken, there would be no need for clearance as an alternative.
Miss Johnson: I cannot help the hon. Gentleman greatly in that regard. The Revenue placed initial guidance on the website when the Bill was published. As I said, we will continue to work with the market to provide guidance. I am not sure about the term ``safe harbour guidance'' because I am not sure that we can provide safe harbours. However, we are committed to producing as much further guidance as possible, by working with the market. It would be premature for me to go into any more detail but I hope that the hon. Gentleman registers the fact that there are difficulties in taking a different approach and that we are doing what we can to make the legislation as straightforward as possible for those who are operating it. The fact that it is a deregulatory measure is a real gain to the industry.
Mr. Flight: The Minister's comments are helpful but not helpful enough. The points were raised by the Law Society and the various accounting bodies. If a paying party has done its homework to ascertain whether it should stop withholding tax and there is a problem that it has not caused, it would be unreasonable for the Revenue then to charge it withholding tax and a penalty. I do not know about a safe harbour or a safe haven, but it should be made clear under the new streamlined arrangementswhich are broadly welcome and the result of constructive discussionthat the Revenue do not intend to act unreasonably in situations where companies have been conscientious and professional about ascertaining whether they should be stopping tax.
Miss Johnson: In some situations the measure can clearly work and in others it cannot. There will be areas in betweenwhich is what the guidance relates to. As I said, the Revenue will often not have the information to provide the certainty that the hon. Gentleman seeks. In such circumstances, the companies concerned will have to operate on the basis of reasonable belief, and people must decide what they will do about that. Market operators who wish to protect against the Revenue making claims such as those mentioned by the hon. Gentleman might do so by seeking indemnities from those to whom they make such payments, but just on the basis of contractual arrangements between the concerned parties. I envisage that happening in some of the situations on which the hon. Gentleman seeks greater certainty.
Mr. Flight: The point is well aired and not worth pressing to a Division. However, it is an operational issue and, if the new arrangements are to work satisfactorily, the industry and the Revenue will have more work to do to reach a common understanding of what I would broadly call safe harbour situations. If, as the Minister said, the complications and expense of indemnities are necessary, they should be kept to a minimum; otherwise, the measure will not be deregulatory. Having aired the point, I will seek leave to withdraw the amendment.
Mr. Letwin: I just want to set the record straight, because I misled the hon. Member for Torridge and West Devon in responding to his question on 75 per cent. holdings on double tax relief. Having re-examined my papers, I want to place on record the fact that the exemption or rollover ought to apply to any substantial shareholding. One could argue about how big a substantial shareholding should be, but I was wrong to say at least 75 per cent. and I apologise to him and to the rest of the Committee.
Mr. Burnett: I am grateful for that clarification.
Mr. Flight: I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 83, as amended, ordered to stand part of the Bill.
Clauses 84 to 86 ordered to stand part of the Bill.
|©Parliamentary copyright 2001||Prepared 8 May 2001|