Mr. Laws: I resent the Paymaster General's tone. We are talking about the 10 years ago since I left the City of London, time during which she has been serving in Finance Bill Committees. My point was designed to be helpful to the Treasury.
For a prolonged period, under Conservative and Labour Governments, the Treasury has consistently failed to close such loopholes. It has failed for two reasons. First, it has been consistently unimaginative in introducing legislation to anticipate loopholes. Instead, the loopholes have to be closed afterwards. The proposal that was eventually introduced to extend employers' national insurance contributions to all benefits in kind is a model of that type. Secondly, the Paymaster General has not recognised the fact that if the Government continue to introduce tax breaks that allow innovative individuals in the tax avoidance industry to exploit such loopholes, we shall no doubt return to the same debate year after year.
Dawn Primarolo: The hon. Gentleman is quite right that I have served on Finance Bill Committees under two Governmentsa total of 10 Finance Bills, yet I cannot recollect one occasion when the Liberal Democrats advanced a solution. Indeed, I can remember the party voting against anti-avoidance
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proposals. If the hon. Gentleman has a proposal, we would like to hear about it. It is not a matter of party politics. It is about the defence of revenue for the good of all taxpayers.
Mr. Laws: I shall not steer too far away from the subject of the debate, Sir John, but the Paymaster General is entirely wrong in suggesting that we have not proposed measures to close avoidance opportunities. I refer to 1994four or five years before a Labour Government eventually decided to close the avoidance on national insurance contributions and benefits in kindwhen the Treasury kept on closing down individual schemes, rather than dealing with the whole problem. I refer also to our comments about avoidance opportunities in film industry tax reliefcomments that were made at the time, not later.
Finally, in relation to the Paymaster General's somewhat intemperate commentsyou can always tell when the right hon. Lady is in trouble, Sir John, because she speaks intemperatelythe record will show that I have attended at least as many sittings over the past month and a half as she has done.
Mr. Flight: I am clearly a rather dull creature; never in my 30 years in the City have I participated in one of those benefits in kind bonuses. I used to hear about them, though.
Dawn Primarolo: I am not at all surprised to hear that, because the hon. Gentleman is thoroughly genuine, honest and straightforward. I know that he would tell the Revenue if he had received one.
Mr. Flight: Yes, I would probably sneak on a competitor.
I observe that there are two highly important factors in the game of avoidance and anti-avoidance. The first is the level of taxation. When I worked in Hong Kong, where taxes were much lower, there was broad consent about paying a modest level of tax. All Governments have to realise that if taxes are substantial, people will do their best to limit their tax liabilities.
Dawn Primarolo: Is the hon. Gentleman seriously suggesting that our higher rate of tax of 40 per cent. is not modest, and that it is too high?
Mr. Flight: I think that the Paymaster General is deliberately misinterpreting me. I am saying that tax avoidance is not an issue in areas that have low taxation. Obviously, 40 per cent. is a favourable rate of tax in comparison with many of our inefficient EU-economy partners. It is high relative to Hong Kong.
The key point is that the Paymaster General said that the savings schemes that the measures impact onwhich are separate from remuneration anti-avoidance measuresare, in the Government's view, taking advantage of measures in the last Finance Bill that the Government do not want to encourage. Therefore, far from being unintended, it is intended that the measures in new clause 2 affect those savings schemes. I think that that was not understood by the organisations that put in place those schemes, so it is important that it be cleared up.
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There is no point in the amendment if it is the deliberate intention thus to tax those saving schemes. What strikes me as somewhat strange is that the schemes have, generally, been put in place with the knowledge of the authorities and of the Financial Services Authority. It might have been helpful if it had been communicated earlier, right up front if possible, that the schemes were not intended.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 3
Restricted securities with artificially depressed value
'(1) Section 446E of the Income Tax (Earnings and Pensions) Act 2003 (c.1) (employee securities with artificially depressed market value: charge on restricted securities) is amended as follows.
(2) In subsection (1), after ''on restricted securities),'' insert
''(aa) immediately before the employment-related securities are disposed of (in circumstances which do not constitute such an event) or are cancelled without being disposed of,''.
(3) For subsections (3) to (6) substitute
''(3) ''The relevant period'' is the period beginning
(a) if section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applied in relation to the employment-related securities, 7 years before the acquisition, and
(b) in any other case, 7 years before the relevant date,
and ending with the relevant date.
(4) ''The relevant date'' is
(a) in a case within subsection (1)(a), the date on which the chargeable event concerned occurs,
(b) in a case within subsection (1)(aa), the date on which the disposal or cancellation concerned occurs, and
(c) in a case within subsection (1)(b), the 5th April concerned.
(5) Where this section applies in a case within subsection (1)(aa) or (b), a chargeable event within section 427(3)(a) (lifting of restrictions) is to be treated as occurring in relation to the employment-related securities on the relevant date.
(6) In every case where this section applies, subsection (1) of section 428 (amount of charge on restricted securities) applies as if the reference in subsection (2) of that section to what would be the market value of the employment-related securities immediately after the chargeable event but for any restrictions were to what would be their market value at the appropriate time but for the matters to be disregarded.
(7) ''The appropriate time'' is
(a) in a case within subsection (1)(a) or (b), the time immediately after the chargeable event concerned, and
(b) in a case within subsection (1)(aa), the time immediately before the chargeable event concerned.
(8) ''The matters to be disregarded'' are
(a) any restrictions,
(b) the things done as mentioned in subsection (2), and
(c) if the employment-related securities are about to be disposed of or cancelled, that fact.
(9) Where this section applies in a case within subsection (1)(aa), section 428(1) applies with the omission of the reference to OP.
(10) Where this section applies in a case within subsection (1)(a) and the chargeable event concerned is within section 427(3)(c) (disposal for consideration), section 428 applies with the omission of subsection (9) (case where consideration is less than actual market value).''
(4) This section applies on and after 7th May 2004.
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(5) But if the employment-related securities were acquired before that date, section 446E does not apply by virtue of the amendment made by subsection (2) of this section unless their market value would be artificially low immediately before the disposal or cancellation if the date on which the relevant period began were the later of
(a) that on which it did begin, and
(b) 7th May 2004.'.
Brought up, read the First and Second time, and added to the Bill.
New Clause 12
Relationship with chargeable gains
'(1) Subsection (3) below applies if
(a) section 125 applies as a result of a receipt on or after 17 March 2004, by a company that is or has been a member of a partnership, of any consideration for a disposal on or after that date of all or any of its interest in the partnership (''the section 125 disposal'');
(b) a chargeable gain accrues to the company on a relevant disposal; and
(c) the total amount of chargeable gains accruing to the company on relevant disposals exceeds the total amount of any allowable losses accruing to it on such disposals.
(2) References in this section to a ''relevant disposal'' are to any disposal of an asset that, alone or together with other disposals of assets, constitutes the section 125 disposal; and references in this subsection to a disposal of an asset are to be construed in accordance with the 1992 Act.
(3) Where this subsection applies
(a) any chargeable gain accruing to the company on a relevant disposal must be excluded in computing, for the purposes of section 8(1) of the 1992 Act, the total amount of chargeable gains accruing to the company in the accounting period in which that gain accrued;
(b) the relevant net gain (defined by subsection (4) below) must be included in computing for those purposes the total amount of chargeable gains accruing to the company in the accounting period in which the receipt mentioned in subsection (1) above occurred; and
(c) any allowable loss accruing to the company on a relevant disposal must be excluded in computing for the purposes of section 8(1) of the 1992 Act the amount of any allowable losses.
(4) To find ''the relevant net gain'' for the purposes of this section
(a) take the amount by which the total amount of chargeable gains accruing to the company on relevant disposals exceeds the total amount of allowable losses accruing to it on such disposals; and
(b) reduce it (but not below nil) by an amount equal to the chargeable amount.
(5) Where section 125 applies as mentioned in subsection (1)(a) above, in computing any chargeable gain or allowable loss accruing to the company on a relevant disposal
(a) neither the chargeable amount, nor any amount taken into account in computing it, shall be excluded by section 37(1) of the 1992 Act (exclusions from consideration); and
(b) an amount that has been taken into account in computing the chargeable amount shall not by reason of that fact be excluded by section 39(1) of that Act (exclusions from allowable deductions).
(6) If section 125 and this section apply more than once as a result of two or more receipts by a company of consideration relating to the same section 125 disposal
(a) subsection (3)(b) above does not apply in relation to any of the receipts after the first; and
(b) in relation to the first receipt, the amount to be deducted under subsection (4)(b) above is an amount equal to the total of the chargeable amounts found in relation to the receipts.
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(7) Subsection (8) below applies if subsection (3) above prevents an allowable loss that accrued to a company otherwise than on a relevant disposal from being deductible from a chargeable gain accruing to the company on a relevant disposal.
(8) That loss (to the extent that it has not been deducted from any other chargeable gain) shall instead be deductible from the total amount of chargeable gains accruing to the company in the accounting period in which the receipt mentioned in subsection (1) above occurred.
(9) But if, in any case where subsection (3) above applies, there are one or more allowable losses
(a) that are losses to which section 18(3) of the 1992 Act applies, and
(b) that accrued to the company otherwise than on a relevant disposal and are prevented by subsection (3) above from being deductible from a chargeable gain accruing to the company on a relevant disposal,
the total amount deducted under subsection (8) above in respect of those losses must not exceed the relevant net gain.
(10) In this section
''the 1992 Act'' means the Taxation of Chargeable Gains Act 1992 (c.12);
''the chargeable amount'' means the amount found under section 125 in relation to the receipt mentioned in subsection (1) above; and
references to chargeable gains, or allowable losses, accruing on disposals are to be construed in accordance with the 1992 Act.'.[Dawn Primarolo.]
Brought up, read the First and Second time, and added to the Bill.