Finance Bill

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Mr. Francois: I have listened carefully to what the Economic Secretary has said, but I am not entirely convinced. The amendment does not stop information being passed on to the respective valuation office; it just stops it being passed on much more broadly by ministerial fiat, by virtue of regulations that we do not have in front of us now. There is no suggestion that if our amendment were agreed to that the valuation officers would not be able to do their job: they will, and we are not trying to impede that process. We are trying to ensure that Ministers do not slip into the Bill a much broader and more wide-ranging power that is indicative of a trend that runs throughout the Bill.

A point made in earlier sittings by my hon. Friend the Member for Runnymede and Weybridge was that there is a trend for the Government to legislate broadly—giving themselves Henry VIII powers in certain clauses—but to provide some reassurance on the record when such matters are debated. Our preferred method would be to draw the legislation tightly in the first place so that those reassurances are not required.
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I have listened to the Economic Secretary, but he has not convinced me so I give him notice that we on the Conservative Benches intend to engage the enemy more closely and will press this matter to a vote.

Stephen Williams: Following on from what the hon. Gentleman said, the Economic Secretary gave good reasons for paragraphs (a), (b) and (c), but he did not address the need for paragraph (d). I should like him to return to that.

He said that since 1931 the stamp duty office has been able to pass to the valuation office details of house prices. I did not know that but it may be true. However, it could not pass on to income tax inspectors, for instance, somebody's purchase price for a house, whereas under the power in the Bill it seems that all departments of the Inland Revenue could be privy to information about people's purchasing power as they buy property. That could lead to an investigation against somebody's self-assessment income tax return, whereas at the moment the Inland Revenue would not be privy to that information.

Will the Minister address the question that the hon. Member for Runnymede and Weybridge and I asked him? Why do we need the broad powers in paragraph (d), rather than in paragraphs (a), (b) and (c)?

Mr. Lewis: As far as I am aware the purchase price of a property is already in the public domain at the Land Registry, so I am not sure what the hon. Gentleman is getting at. In the interests of all Committee members, and since the hon. Member for Rayleigh wants to engage the enemy, Mr. Cook, let's get engaged. [Laughter.]

The Chairman: There are some quite astonishing questions coming up in this Committee.

Question put, That the amendment be made.

The Committee divided: Ayes 8, Noes 12.

Division No. 4]

Field, Mr. Mark Francois, Mr. Mark Hammond, Mr. Philip Hammond, Stephen
Kramer, Susan Newmark, Mr. Brooks Spring, Mr. Richard Williams, Stephen

Balls, Ed Flello, Mr. Robert Goodman, Helen Healey, John Lewis, Mr. Ivan McCarthy, Kerry
McFadden, Mr. Pat Marris, Rob Morden, Jessica Primarolo, Dawn Tami, Mark Watson, Mr. Tom

Question accordingly negatived.

Clause 48 ordered to stand part of the Bill.

Clause 49 ordered to stand part of the Bill.

Schedule 10

Stamp duty land tax: miscellaneous amendments

Mr. Francois: I beg to move amendment No. 95, in schedule 10, page 145, line 7, after 'effect', insert

    ', (but not so as to make the vendor in relation to the earliest previous transaction the vendor for the purposes of paragraph 5(2)(a))'.

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    The Chairman: With this it will be convenient to discuss the following amendments: No. 96, in schedule 10, page 145, line 13, at end insert

      'and relief has not been withdrawn by virtue of paragraphs 3 or 9 on or before the change of control in the purchaser to which this paragraph applies,'.

      No. 97, in schedule 10, page 145, line 42, at end insert—

      '(6) Where—

      (a) there is a change of control of the purchaser; and

      (b) the same circumstances that give rise to a change of control of the purchaser in relation to the relevant transaction may also give rise to a change of control of the vendor; and

      (c) paragraph 4A(1) could apply in relation to an earlier transaction on which group relief has been obtained and not withdrawn (''the prior transaction'') in relation to which the vendor (under the relevant transaction) was the purchaser (under the prior transaction);

      paragraphs 3 and 4 shall only apply to the prior transaction if and to the extent that the market value of the property the subject of the prior transaction, exceeds the market value of the property the subject of the relevant transaction''.'.

    Mr. Francois: I congratulate the Economic Secretary on winning that brief naval engagement. The only drawback is that he will now have to be shot.

    We have a number of amendments relating to the schedule to consider. I should give notice that part of the schedule is potentially controversial. Amendment No. 95 is a probing amendment, which deals with the issue of potential secondary liabilities as outlined in part 1 of the schedule, and deals with group relief from stamp duty land tax. The amendment concentrates on what happens when property is transferred between companies within a group, for instance as a result of a corporate reorganisation. Those transactions are usually given so-called group relief from payment of stamp duty land tax on the general rule that the transferred property then remains in the group for at least three years.

    In essence, the Government's proposal in part 1 relates to a situation where a property is transferred from company A to company B within a group, is then subsequently transferred from company B to company C, again within the group, and Company C then leaves the group within the three-year period. That makes company C potentially liable for repaying the group relief, which had been given at the time of the internal transfer. I am sure that you follow all that, Mr. Cook.

    The new clawback provision in new section 4A also appears to open a potential secondary liability for company A if company C fails to pay the stamp duty land tax. Our concern is that, as drafted, new section 4A(1) opens such secondary liability too far back down the chain, to A, even though A might not have been involved in the subsequent transaction between B and C. That is achieved by deeming A in the example just given to be the vendor for the relevant transaction previously having taken place further up the chain. The purpose of the amendment is to ascertain whether that was the Government's original intention. If it was, what is their rationale for the measure? Do they genuinely believe that there have been a number of attempted avoidance schemes on the basis that we are discussing? Are they using this part of the schedule to plug a loophole? We are interested to know the rationale underlying the proposal and to know about
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    any evidence that they can give the Committee in order to substantiate what they seek to do. I look forward to hearing the Economic Secretary's reply.

    Mr. Lewis: I am wondering whether those As, Bs and Cs were the same ones that I was referring to earlier. I am not quite sure, but I will do my best to respond in detail to the hon. Gentleman's reasonable points.

    It would be useful if I started by explaining why we feel there is a need for these measures. Stamp duty land tax was introduced in 2003. One of the main drivers was to provide fairness between taxpayers. Residential purchasers and small businesses have never had any choice over whether to pay stamp duty. By contrast, stamp duty was effectively a voluntary tax for many commercial purchasers and lessees. Thus, as part of the process of modernising stamp duty, the Government were determined to build in an effective anti-avoidance regime. The legislation implementing stamp duty land tax thus contained a number of anti-avoidance measures.

    However, we quickly became aware of new schemes and so further anti-avoidance measures were contained in the Finance Act 2004. The hon. Member for Rayleigh alluded to that. The past year has seen the emergence of yet more schemes, some of which are of great complexity. He mentioned one or two of those. Although we have no wish to further complicate the legislation, we remain determined to attack avoidance and ensure that all taxpayers pay their fair share.

    3.15 pm

    In direct answer to the hon. Gentleman's question, I should emphasise that all the measures introduced under the schedule are in response to actual schemes about which Her Majesty's Revenue and Customs have been made aware. None are in response to hypothetical schemes. I hope that that gives further reassurance.

    Before I turn to amendments Nos. 95 to 97, I shall quote from an article written by Robert Kent, tax partner at Freshfields Bruckhaus Deringer, in response to a question about making stamp duty land tax savings on future transactions. The article was published on 20 May and commented on the original proposals included in the Budget earlier this year, most of which are retained in this Bill. He wrote:

      ''In this year's Budget, the Chancellor closed almost all the loopholes used to avoid Stamp Duty on commercial property transactions.''

    In many ways, that is a ringing testament to the Government's efforts to provide an equitable regime for all by closing loopholes to ensure a fair contribution. That is why the Committee should support the measures.

    Amendments Nos. 95 to 97 affect paragraph 6, which extends the circumstances in which stamp duty land tax group relief can be clawed back. The Government's intention has been clear ever since the clawback provisions were introduced in 2002. If group relief is claimed, and the transferee company leaves the group within three years, the relief should be clawed back. In the absence of such a provision, groups would
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    be free to wrap a property in a company and sell the shares shortly afterwards without incurring any liability for stamp duty land tax.

    Although the Government's intention was clear, schemes aimed at frustrating it began to emerge almost as soon as the clawback provisions were published. The schemes work by interposing within the group transfers that have no commercial purpose but that stop the eventual clawback of group relief. Hence the need for paragraph 6, which in effect causes the transfers to be disregarded, and which means that it is the relationship between the earliest transferor and the ultimate transferee in a three-year period that is considered. If, at the end of that period, those two companies are no longer in the same group, then unless stamp duty land tax has been paid on one of the intermediate transactions, the relief is clawed back.

    Amendment No. 95 does not affect the circumstances in which group relief is clawed back, but it does affect which companies are liable to pay the tax. At present, once group relief is withdrawn, the tax can be recovered from the company that originally claimed it, connected companies, or the transferor company. That reflects the fact that if payment has been made for the property the transferor company may still be in possession of the money, whereas the transferee may have been liquidated.

    As a result of the changes made by paragraph 6, there will be a right of recovery against the earliest transferor in the three-year period before the ultimate transferee leaves the group. Amendment No. 95 would remove that right of recovery, as I am sure the hon. Member for Rayleigh now understands and accepts.

    It is worth pointing out that, where there are successive transfers, the earliest transferor may be the only company carrying on a genuine business, with the other companies being inserted for tax reasons and being quickly eliminated. It therefore seems entirely right that HMRC should be able to recover tax from that company. Hon. Members should bear in mind that in most cases paragraph 6 will only affect contrived avoidance schemes.

    Amendment No. 96 would prevent paragraph 6 from applying where there had been a previous clawback of group relief, reconstruction relief or acquisition relief. The hon. Gentleman suggests that that would avoid a double clawback of group relief. I should say, first, that the possibility of a double or multiple clawback exists under the current legislation; it is not created by this measure. However, both under current legislation and in this measure, it is generally possible to arrange matters so that there is no multiple clawback.

    Indeed, amendment No. 96 would create new avoidance opportunities, since any previous clawback would prevent paragraph 6 from ever applying, even if the tax related to only part of the property or to a derived interest such as a lease. Although I have some sympathy with the hon. Gentleman's desire to avoid a multiple clawback, the Government have to ensure that we do not create new avoidance opportunities. I feel unable, therefore, to agree to the amendment.
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    Amendment No. 97 is also aimed at preventing multiple clawbacks. It seems that it is intended to apply when the ultimate transferee leaves the group at the same time as an intermediate transferee. In that situation, the ultimate transferee would still suffer a clawback, but the intermediate transferee would suffer one only if not all the property had been transferred to the ultimate transferee.

    Although that is an ingenious idea, it would be very difficult for such a provision to work in practice. It would also be difficult to know exactly when the amendment applied, as it refers to circumstances that may—I emphasise, may—give rise to a change of control. How would one know what circumstances may give rise to a change of control? The best way to ensure that multiple clawbacks do not occur, as under existing legislation, is to keep the number of successive transfers and changes of control to a minimum.

    As with all new legislation, we shall keep the provisions under review, and I shall consider any representations made if, for example, multiple clawbacks were somehow to become a common occurrence. Having said all that and tried to respond in detail to the hon. Gentleman's amendments, I hope that he will withdraw them.

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