Finance Bill

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Mr. Field: I rise to speak to the clause, because I am sure that we shall not have a stand part debate, and to the amendments.

I give credit to the Government for the significant consultation exercise. I have been in touch with a number of institutions in the City of London and we have tabled few amendments on the provisions because, as was rightly pointed out, there have been at least three stages of consultation during the past 18 months or so. For that, the Government must be congratulated.

Equally, past legislation in this area has not been unimpeachable. We have a moving goal because of fast-moving, globalised finance, and the subject is technical so amendments must be made from time to time. The advice that I have received from several institutions suggests that at this juncture they are at

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least comfortable with most of what is proposed in the clause. The proof will be in the pudding. The concerns that have been expressed by my hon. Friend the Member for Arundel and South Downs and others, here and elsewhere, is that the Treasury has a tendency to meddle in so many areas. Although certain aspects of its work will be welcomed, other bits will be seen as tampering for the sake of it.

The City of London is an important financial centre and a centre of invisible earnings for this country. I have a philosophical concern that a feeling exists that taxes must be raised, and that banks and other financial institution must go about their business ensuring that they pay a fair amount of tax; it is somehow seen as illegitimate to avoid tax and utilise the tax system. The idea that financial institutions should be willing to take everything on the chin and not use the system to their benefit is a matter of concern.

The Financial Secretary assured us that it will be up to a financial institution to go to the local tax inspector for advice in advance. However, the area is extremely technical, so I wonder whether in practical terms that will give much comfort to financial institutions, which could find themselves in a difficult position when acting on behalf of clients—they may find that a structure that they have put in place collapses and becomes tax liable. A difficulty that the hon. Lady pointed out was that institutions will receive tax advice from a leading tax QC or law firm, but that tax advisers must give balanced advice. My concern is that, likewise, the local tax office would give an on-balance decision only. When large sums of money are at stake in some of the more complex structures that have been introduced to the financial services sphere, that is not good enough.

Some of the amendments should be welcomed. The City institutions to which I have spoken feel that there has been a significant and acceptable level of consultation. I hope only that we will not have to unpick everything in the next two or three years when some of the implications become apparent.

Mr. Flight: I thank the Financial Secretary for her response, and I echo the point just made that everyone is well aware that there has been extensive consultation. Although, I cannot resist commenting that the number of Government amendments is substantial—clearly, consultation was not completely complete—I welcome the fact that amendments have been tabled late in the day to address some of the problems presented by certain causes.

As my hon. Friend the Member for Cities of London and Westminster (Mr. Field) said, we do not have a great deal to say as we proceed through clause 82. I simply make the point that the issue of informal versus formal statutory clearance needs in-depth consideration. I have known circumstances where there has been a problem with informal clearance and it has never been given because inspectors of taxes feel

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that they are out of their depth or they do not want to give an opinion. However, as far as possible we wish to retain the sharpest of clarity in our tax law.

I question whether the informal clearance mechanism will actually work. In the co-operative spirit of the Revenue, it is potentially better than statutory clearance in that it is more flexible. However, it will need to be kept under review and if, in such complex anti-avoidance areas, informal clearance were found not to be satisfactory, any Government would need to consider formal statutory clearance arrangements.

Clearance is the main issue in the clauses and although the amendments are tabled to clause 68, they relate to several other clauses in this group. We will not press the matter to a vote, but our view is that an open mind must be kept as to whether the informal clearance arrangements are delivering what is needed economically. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 68 ordered to stand part of the Bill.

Clause 69

Forward premiums and discounts under currency contracts

Question proposed, That the clause stand part of the Bill.

Mr. Flight: There has been some criticism levelled at the way that the revised clauses were introduced with immediate effect from 26 July 2001, which was the date on which the original draft clauses were published. The measure could be retrospective legislation in that it applies to contracts that were taken out before the publication of the draft legislation, whereas the Chartered Institute of Taxation has suggested that the provision ought to apply to contracts taken out after 26 July 2001. Are we right that that is what the clause means? If so, it is clearly a bad precedent to introduce retrospective tax legislation.

Ruth Kelly: Clause 69 is an anti-avoidance rule that amends a special computational rule in the financial instruments legislation to ensure that it works as originally intended. It deals with the recognition of forward premiums and discounts, which are amounts equivalent to payments and receipts which accounting convention requires to be recognised in some circumstances.

The hon. Member for Arundel and South Downs is concerned about whether the rule is in any sense retrospective. I do not believe that it is. The new rule applies only to forward premiums and discounts—which should be recognised under UK GAAP—attributable to the period from 26 July 2001, the date on which the rule was announced and the clause first published.

I reiterate to the hon. Gentleman and to the Committee that such anti-avoidance measures are designed to catch sophisticated, carefully designed processes designed purely to avoid tax that is owed to

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the state. I do not for a moment share the philosophical doubts of the hon. Member for Cities of London and Westminster about the legitimacy of raising a fair share of taxation from particular individuals or companies. I take the principled view, which I think is shared on the Labour Benches, that we should create a level playing field where everyone pays a fair share of tax. That is what the clause is designed to do.

Mr. Flight: I wish just to make the point that I was expressing the concerns of the Chartered Institute of Taxation. I am not sure that the Minister answered them, in that there is a difference between the measure being effective from the date of the draft legislation, which is perfectly fair and understandable, and its affecting contracts prior to that. I am well aware that the clause rightly deals with a narrow territory, but I should like clarity on that point.

6.45 pm

Ruth Kelly: I have made the position clear. We seek to avoid deliberate tax evasion. In one sense, it is updating an existing measure providing that tax should not be avoided. Companies should have no difficulty in interpreting what is and what is not tax avoidance. We do not want to miss the opportunity of avoiding leakage to the Exchequer, which the clause seeks to stop.

Mr. Flight: I am slightly concerned by what the Minister said. No one likes tax avoidance, and it is fine that people should pay their fair dues and so on. However, the law is the law and, as I have pointed out on many occasions, there is great strength in the Anglo-Saxon heritage in the UK and the USA compared with continental Europe, where there is a lack of clarity about the difference between avoidance and evasion. Such a lack of clarity leads to tax evasion and to a corrupt society. That is the reason for the massive evasion of tax on interest by German savers—[Interruption.]

The Chairman: Order. I ask hon. Members to keep the noise levels down.

Mr. Flight: Thank you, Mr. Benton.

Tax evasion became socially acceptable because of a lack of clarity about the difference between evasion and avoidance. Laws are passed by Parliament, courts interpret those laws and, by and large, people will take measures if they legally can to reduce their tax liabilities. It is a question of what is within the law and what is without it. The tidying up of laws that permitted avoidance—it may have been perfectly correct; in essence, it was commenting on the fact that the original law may not have been clear enough—is time-consuming and complex, but it needs to be done if we are to keep our principle. However, it is not correct to say, ''Oh, because we are blocking up a tax avoidance scheme, we do not mind its being retrospective.'' That is not in the tradition of British tax law. If that principle were to be followed, one would find that it led the country down some fairly undesirable byways.

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I still ask my question on that narrow point. It is totally fair and reasonable to announce something on a particular date and say, ''From now onwards, the law is clear.'' However, it is relevant whether it applies retrospectively to contracts taken out before that date.

Rob Marris (Wolverhampton, South-West): If I understand him correctly, I have some sympathy with what the hon. Member for Arundel and South Downs says. I wonder whether the Minister would clarify part of new section 168A to the Finance Act 1994, inserted by clause 68.

Subsection (3), at the top of page 46, allows an apportionment procedure for qualifying contracts for the purposes of dealing with the date of 26 July 2001. I cannot see that sort of apportionment for before and after that date in clause 69. I may not have read it correctly, or the contracts may be so complex that I do not understand them. Will the Minister explain why such apportionment is provided under clause 68 but not clause 69, which appears to give the retrospection about which I am uneasy?

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