Mr. Burnett: I cannot remember whether the hon. Gentleman was a member of the Committee that considered the Finance Bill in 1998, but he may recall
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that substantial anti-avoidance provisions were included in that Bill. That was an example of the Government's being unable to catch up with wide-scale stamp duty avoidance. Two large transactions took place that year: British Petroleum and Vodafone both purchased shares in overseas companies, and both companies managed to avoid paying stamp duty. They saved themselves an enormous amount of money, notwithstanding that year's vast tranche of anti-avoidance legislation.
Mr. Flight: I thank the hon. Gentleman for that intervention. I may not have been a member of that Committee, but I was certainly aware of the Vodafone situation. It is obvious that when taxes are unacceptably high, that is what happens. It becomes a nightmare for the Government, who must constantly try to keep up by blocking tax loopholes.
I hope that the Government will have the sense in their statutory reforms to realise that stamp duty needs to be pitched at a level that is appropriate to the economic circumstances. We are not talking about housing stamp duty but, as the Governor of the Bank of England has warned, when interest rates go up, which at some stage they surely will, and the south-east housing market crashes, if stamp duty remains at 4 per cent. we shall have a dangerously illiquid market and a crisis on our hands.
I have no doubt that the Government will resort to doing what the last Conservative Government did and cut stamp duty to try to cushion the agony. It is a nice earner to have a rate of 4 per cent. when the going is good but one must be aware of the economic consequences when the going is bad.
In conclusion, we think that, for the specific purposes of clause 109, an anti-avoidance motive is justified. The Government will not give way and it is not worth putting the matter to the vote, but I hope that they will take heed of what I have said and what they will have found out for themselves from speaking to representatives of the industry and the legal profession. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 109 ordered to stand part of the Bill.
Stamp duty: withdrawal of group relief: supplementary provisions
Ruth Kelly: I beg to move amendment No. 238, in page 462, line 22, at end insert—
'Relief not withdrawn in case of winding-up
2A (1) Section 109 does not apply if the transferee company ceases to be a member of the same group as the transferor company by reason of anything done for the purposes of, or in the course of, winding up the transferor company or another company that is above the transferor company in the group structure
(2) For the purposes of this paragraph a company is ''above'' the transferor company in the group structure if it is the parent (within the meaning of the relevant group relief provision)—
(a) of the transferor company, or
(b) of another company that is above the transferor company in the group structure.'.
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For the record, I should set out the Government's intentions with regard to the amendments, as the Opposition have not had much notice of their content. Schedule 34 ensures that a clawback charge is not triggered if a transferor company leaves the group. However, we have been asked whether the clawback is similarly not triggered when the transferor company goes into liquidation. It is not our intention that the liquidation of the transferor company should give rise to the clawback charge. To address that point, Government amendment No. 238 ensures that group relief is not withdrawn where the transferor company leaves the group by way of liquidation.
That is the case whether the liquidation is that of the transferor company or a company that is above the transferor company in the group structure.
Amendment agreed to.
Ruth Kelly: I beg to move amendment No. 239, in page 463, line 10, leave out sub-paragraph (1) and insert—
'(1) If any duty payable under section 109 is not paid within the period of 30 days within which payment is to be made, interest is payable on the amount remaining unpaid.'.
The Chairman: With this it will be convenient to take Government amendment No. 244.
Ruth Kelly: Amendment No. 239 addresses a point raised by representative bodies regarding the date from which interest runs on the clawback charge. We have listened to representations that claim that it is inequitable to apply interest from the date of the original intra-group transfer. Although this is an anti-avoidance provision, we are content that interest should apply only where the clawback charge itself has not been paid within 30 days of having been triggered. The amendment ensures that interest will apply only to any amount of the clawback charge that remains unpaid at the 30-day point.
Amendment No. 244 achieves an identical effect for Schedule 35, which contains provisions for clawing back the relief for company acquisitions. It also addresses points put to me by representative bodies. I commend the amendments to the Committee.
Amendment agreed to.
Mr. Flight: I beg to move amendment No. 169, in page 464, line 3, leave out paragraphs 7 and 8.
The Chairman: With this it will be convenient to take the following: Government amendments Nos. 240 to 242.
Amendment No. 170, in page 468, line 12, leave out paragraphs 8 and 9.
Government amendments Nos. 245 and 246.
Mr. Flight: I hope that the Government amendments will address the points raised by our amendments Nos. 169 and 170, but I have not had the opportunity to digest them yet. Our amendments deal with issues raised by the Law Society of England and Wales. Subsections (7) and (8) of clause 109 and subsections (8) and (9) of clause 111 all impose a secondary liability on other group companies and controlling directors for clawback of stamp duty relief, which can arise inadvertently. The Law Society
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considers such a power to be excessive, wholly inappropriate and liable to create material difficulties with financing arrangements.
Schedule 34 provides that, where group relief is withdrawn, a secondary liability could fall on a controlling director of the transferee company or any company that has control of the transferee company. There are no existing provisions under which the secondary liability for stamp duty is imposed, and in the Law Society's view, it is inappropriate to introduce the concept at a time when the stamp duty rules are about to be changed substantially, particularly as in the majority of cases, any withdrawal of relief is likely to have arisen entirely as a result of transactions that were not in the contemplation of the parties at the time of the original transfer. For example, if property had been transferred to a development company in the group without any wrongdoing on the part of the company, it seems grossly inequitable that, if the company became insolvent and was sold, a person who was a controlling director at the time of the original transfer could be held liable for any stamp duty that became due as a result.
If, notwithstanding the above comments, it is considered that provision for a secondary liability should be made, the Law Society's view is that, following a similar approach to that adopted in section 190 of the Taxation of Chargeable Gains Act 1992 in relation to UK companies, a secondary liability can be imposed only on a member of the group that has owned the asset in the previous 12 months.
I trust that the Government are already aware of the legal community's concerns on both counts. The clause 111 issue is that the use of the definition of control in section 416 of the Taxes Act 1988 is likely to lead to considerable uncertainty about whether the clause may result in the withdrawal of relief under section 76 of the Finance Act 1986. The Law Society recommends instead the definition of control set out in section 840 of the Taxes Act 1988. I hope that the Minister will be able to advise that what are considered to be moral measures, as well as definitional measures, will be limited by the Government's amendments.
Ruth Kelly: In the event that the transferee company fails to pay the clawback charge under clause 109, paragraphs 7 and 8 of schedule 34 will provide for the charge to be recovered from another group company or certain controlling directors. It is vital that those powers are included in the schedule, as they will allow the Inland Revenue to look to other persons, where the charge has been triggered by the transferee company but—for reasons of liquidation, for example—the charge cannot be recovered from the transferee company. So I cannot agree with the broad thrust of the argument made by the hon. Member for Arundel and South Downs.
That type of recovery power is not unique. It has previously been used in legislation on the tax recoverable from another group company or controlling director in respect of corporation tax on chargeable gains. The clawback of stamp duty group
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relief under clause 109 is an anti-avoidance measure, which aims to discourage the use of companies set up to avoid stamp duty. There is no reason why the charge should not be collected from other companies in the group or, indeed, failing that, from a controlling director.
Where the transferee company pays the clawback charge, there is no question that such provisions would be invoked. The provisions merely support the proper administration of the withdrawal of group relief provisions. However, I can tell the hon. Gentleman that the Government have listened to representations on the breadth of the companies from which the clawback charge can be recovered. As a result, we tabled Government amendments Nos. 240 to 242, which will limit the companies from which group relief is recoverable, in the event of non-payment by the transferee company, to the transferor company or any company that is above the transferee in the group structure. That answers concerns that the charge could be recovered from any company in the group, even if the company were not above the transferee company in the group structure, and it addresses the representations that have been made regarding real commercial constraints of the breadth of the recovery power.
I should add that Opposition amendment No. 170 and Government amendments Nos. 245 and 246 achieve the same effect for schedule 35, which contains supplementary provisions for withdrawal of relief on company acquisitions. The same reasons for rejecting the Opposition amendment and supporting the Government amendments therefore apply to schedule 35.