Finance Bill

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Clause 36

Balancing payments and elections to

pay tax instead

Dawn Primarolo: I beg to move amendment No. 79, in

    clause 36, page 39, line 18, leave out

    'issued by the advantaged person'.

The Chairman: With this it will be convenient to discuss the following amendments: No. 13, in

    clause 36, page 39, line 19, leave out 'The disadvantaged person' and insert

    'Any company other than the advantaged person (''the electing company'')'.

No. 14, in

    clause 36, page 39, line 20, leave out

    'condition in sub-paragraph (3) below is'

    and insert

    'conditions in both of sub-paragraph (3) and sub-paragraph (3A) below are'.

No. 15, in

    clause 36, page 39, line 22, after 'condition', insert 'in this sub-paragraph'.

No. 16, in

    clause 36, page 39, line 31, at end insert—

    '(3A) The condition in this sub-paragraph is that arrangements are made by the electing company for securing the payment of any tax which, but for the election under this paragraph, would have been payable by the advantaged person in respect of the application of paragraph 1(2) above in relation to the relevant security by virtue of paragraph 1A above and those arrangements are approved by the Board for the purposes of this paragraph.

    (3B) If any information furnished by the electing company for the purpose of securing the approval of the Board under sub-paragraph (3A) above does not fully and accurately describe all the facts and considerations material for the decision of the Board under that sub-paragraph, any resulting approval of the Board shall be void.'.

No. 17, in

    clause 36, page 39, line 33, leave out 'the disadvantaged person'.

No. 18, in

    clause 36, page 39, line 34, after '(a)', insert 'the disadvantaged person'.

No. 19, in

    clause 36, page 39, line 36, leave out 'a chargeable period' and insert

Column Number: 136

    'any chargeable period ending on or after the date of the election'.

No. 20, in

    clause 36, page 39, line 38, after 'instead', insert 'the electing company'.

No. 21, in

    clause 36, page 39, line 39, leave out 'that period' and insert

    'any chargeable period ending on or after the date of the election'.

No. 22, in

    clause 36, page 40, line 1, leave out 'disadvantaged person' and insert 'electing company'.

No. 23, in

    clause 36, page 40, leave out lines 7 to 10 and insert—

    '(aa) must be made no later than twelve months from the end of the chargeable period in which the relevant security is issued.'.

No. 24, in

    clause 36, page 40, leave out lines 18 to 23.

Dawn Primarolo: I will briefly introduce amendment No. 79, but I will not talk about amendments Nos. 13 to 24 until the hon. Member for Hertford and Stortford has had the opportunity to speak to them.

Amendment No. 79 extends the range of circumstances in which a special provision for securitisation may apply. As drafted, the Bill allows the securitisation rule to apply only where a transfer pricing adjustment is made to a company that is a borrower of a loan. The amendment allows the rule to apply whether the adjustment is made to a lender or a borrower. All the other conditions for the application of the rule remain the same. The amendment is being made following representations made since the Bill's publication which argued that there are circumstances in which transfer pricing potentially applies to a lender in the context of a securitisation, and that that might affect the rating of bonds issued under securitisation. The amendment will allow the special rule to apply in all circumstances, subject to the other conditions that are set out in the clause being met.

The Government consulted widely with the City before publication of the Bill, but other specialist representative groups made points following publication; hence the need for the amendment. I hope that the Committee will agree that it is a sensible solution and will support it.

Mr. Prisk: I would welcome your guidance, Sir John, on whether I am correct in assuming that in addressing amendments Nos. 13 to 24, which overlap with the Government's amendment, I can respond to some of the points made by the Paymaster General.

The Chairman: Absolutely. The proposal is that we should debate the Government amendment together with the hon. Gentleman's amendments, because they apply to the same issue. It would, of course, be possible to have a separate vote should the hon. Gentleman so wish.

Mr. Prisk: Thank you, Sir John. I asked because, in considering a number of linked amendments, we might stray beyond the scope of Government amendment No. 79, although securitisation and ratings are at the heart of the matter.

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The neatest way to summarise the amendments is to say that their aim is to help the clause to achieve its purpose. They may overlap with the Government amendment, which has a similarly benign intention, but that will help us to draw out the meaning behind the clause. I take the point that the question raised in a previous deliberation about the interplay between securitisation and rating agencies is more appropriate to this discussion.

The securitisation market, to which the amendments refer, lays great emphasis on ratings given to securitisation and debt by rating agencies. I mentioned those earlier. The agencies have stringent requirements regarding the creditworthiness of the securitisation structure. If the new transfer pricing regime applied in full to companies within securitisation structures, there would be a risk that one or more of the companies concerned might not obtain tax relief for all interest payments. That would have an adverse effect on such things as cash flow. The existence of such a risk would have to be reflected in the legal opinions given to the rating agencies, and that might result in a downgrading of the securitisation debt.

The amendments deal with linked concerns arising from the current provisions relating to elections under new paragraph 7B. The election referred to in that paragraph is available only to the disadvantaged person, and part of that issue is addressed by the Government amendment. The disadvantaged person is a related person who is also involved in the transaction and is subject to UK tax in relation to it. Securitisation structures typically involve a group of companies, each of which has a specific role within the group. Limiting the election to the disadvantaged person might mean that the tax cannot be borne by the appropriate company within the group. The election should be capable of being made by any person, not just the disadvantaged person, with the important condition that the Inland Revenue is satisfied that the electing company will be in a position to meet the relevant tax liabilities; hence one of the amendments.

The election is capable of being revoked by the Revenue on notice, subject, of course, to paragraph 7. No time limit is imposed on the Revenue's ability to give such notice, and its right of revocation could be problematic in some cases, because the rating agencies will assume that the election is revoked and that some of the interest on the securitisation debt is not deductible. Part of the intention of the amendments is to try to ensure that groups are able to enter into arrangements with the Revenue with the result that the securitisation group is removed for all time from its liability under the transfer pricing rules. That would enable the Revenue to review the proposals in advance, but there would not be the risk of an election being revoked respectively.

Finally, an election under new paragraph 7B will be included in the tax return of the company making it for the tax accounting period in which the debt is issued. That could leave a period between a debt being issued and the return being made in which there is no

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certainty that the election would be made. That happens sometimes, and it is a risk factor that rating agencies would need to take into account. One of the purposes of the amendments is to enable those elections to be made prior to the submission of the corporation tax return.

I fully understand that the Government amendment, which I saw after tabling my amendments, relates particularly to the question of advantaged or disadvantaged people. I welcome the Minister's comments on that. That in essence is the subject of the amendments—I say that having taken so long to explain them.

Mr. Burnett: I think that the debate can be distilled to a relatively straightforward point. The rating agencies, which are crucial in these matters—

4.37 pm

Sitting suspended for a Division in the House.

4.52 pm

On resuming—

Mr. Burnett: I was saying that rating agencies in the securitisation market want certainty. The Paymaster General is aware how important these transactions are to the economy and that we want to make Britain the home for as many of them as possible.

I shall dwell briefly on the three simple points made by the hon. Member for Hertford and Stortford. First, the election provision is in clause 36(2). Limiting the election to the disadvantaged person may mean that the tax cannot be borne by the appropriate company. I am sure that the Paymaster General will concede that that is unfortunate, given that certainty is very important at the start of these transactions, for the reasons I gave earlier.

Secondly, clause 36(7) states:

    ''An election under this paragraph by a person is of no effect if the Board give that person a notice under this sub-paragraph refusing to accept the election.''

It is a fairly simple point, balancing up the taxpayer's position; no time limit is imposed on the Inland Revenue's ability to give such a notice. Surely, there should be a time limit on the Inland Revenue for the purposes of certainty and in the interests of a fair and equitable tax system.

Thirdly, the hon. Gentleman made the point that the elections under new paragraph 7B are to be included in the tax return of the company making it for the tax accounting period in which the securitisation debt is issued. That will leave a period between issue of the securitisation debt and making a return when there is not complete certainty that the election will be made. That third point is, again, an issue of certainty. I hope that the Paymaster General will consider the important amendments suggested by the Law Society, in the interests of fairness to the taxpayers and in the interests of our economy.

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