Finance Bill


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Mr. Lewis: The hon. Gentleman says that he does not wish to show any disrespect, having accused me of speaking waffle; that is a curious oxymoron.

I shall respond very quickly. Organisations and individuals who are not seeking to engage in avoidance have nothing to fear from the measures. Frankly, we have no sympathy whatever with organisations that have engaged, that continue to engage and that will in future engage in avoidance measures. That is why I think that the measures are proportionate and appropriate. I think that the Committee will have to divide.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 12.

Division No. 5]

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

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

Question accordingly negatived.

Schedule 10 agreed to.

Clause 50

Power to extend exceptions relating to recognised exchanges

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

Mr. Francois: The Committee will be relieved to hear that clause 50 is the last of the clauses dealing with stamp duty taxes. It is less controversial than the schedule 10 provisions that we have just debated. It provides for regulation-making powers in relation to the EU directive on markets in financial instruments directive.

The clause permits the extension of stamp duty and stamp duty reserve tax exemptions to sales of stock to intermediaries and for repurchases and stock lending
 
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to members of specified multilateral trading facilities. Those are defined in the associated draft regulations that were helpfully circulated among Committee members by the Economic Secretary on 20 June. Those regulations confirmed that the markets so defined would be the alternative investment market, Ofex and POSIT.

The Economic Secretary's letter confirms that the regulations are due to come into effect as soon as the Bill receives Royal Assent, which will probably be some time next month. So, I just ask the Minister what, if any, is the anticipated revenue effect of extending the exemptions, and what that is likely to be in the current financial year? Have the Government any estimate?

Question put and agreed to.

Clause 50 ordered to stand part of the Bill.

Clause 51

Chargeable gains

Mr. Richard Spring (West Suffolk) (Con): I beg to move amendment No. 148, in clause 51, page 42, line 12, after 'State', insert 'and'.

The Chairman:With this it will be convenient to discuss the following amendments:

    No. 149, in clause 51, page 42, leave out lines 13 and 14.

    No. 150, in clause 51, page 43, leave out line 18.

    No. 151, in clause 51, page 43, leave out line 45.

    No. 152, in clause 52, page 44, leave out line 21.

    No. 153, in clause 53, page 45, leave out line 20.

    No. 154, in clause 54, page 46, leave out line 34.

    No. 156, in clause 55, page 48, leave out line 2.

Mr. Spring: I do not believe that the amendments are controversial, although they are somewhat technical in nature and are a tidying-up exercise. I beg your indulgence, Mr. Cook, to talk for a few minutes about the background to the proposals, in order to give the flavour of the amendments. I also want to outline what clauses 51 to 65 are all about.

The measures have been introduced to bring the European company, the Societas Europaea, into UK tax law and to facilitate corporate reorganisations involving SEs. They follow the publication of an Inland Revenue technical note of January 2005 and subsequent consultation on the clauses. The SEs shall effectively be subject, if UK tax resident, to the same tax law as other UK companies.

Based on recent European Court of Justice cases, some of the provisions, such as those that apply a tax regime where assets are transferred out of the UK different from that where they are transferred out of the EU, might be ruled illegal by the ECJ, often following action from the European Commission, which seeks to create a common corporation tax system across the EU.

There is professional disagreement about that , but arguably, instead of creating new tax legislation, the rules could have been fitted into existing UK reliefs. There are a number of areas where the rules could
 
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greater assist cross-border mergers, not least where there are no provisions to transfer tax losses to an SE on such a merger.

Representations were made on the consultative document, but the extra provision we are discussing was the only change that addressed any of the issues raised in the latest Finance Bill, that of 2005. Some of the issues raised in representations related to specific technical areas, but the major point of concern that has not been addressed in this Finance Bill relates, once again, to a continuing theme of our deliberations—the compatibility of the legislation with the EC Treaty.

Notwithstanding the fact that there is no requirement under the EU tax mergers directive for such transactions to be carried out on a tax neutral basis, we consider that the requirement to retain a permanent establishment in the relevant member state to ensure that the transactions are tax neutral might well be contrary to articles 43 and 48 of the EC Treaty, which relate to freedom of establishment. It might discourage an SE from undertaking those transactions that involve transferring its registered office between member states. We therefore consider that the additional clauses should have been drafted accordingly.

I will now discuss the amendments. At present, the reliefs in clauses 51 to 65 are intended to work in that they allow tax reliefs to apply when companies from separate member states merge. For example, when a German bank and an Italian bank merge into an SE, the merger of their London branches—permanent establishments, in the technical term—should be covered by the tax reliefs. However, the lines we propose to delete mean that mergers of two German banks into an SE, for instance, would not be exempt under the SE rules proposed in the Bill. That appears to be anomalous, albeit close to what the EU mergers directive requests. It is also likely to be contrary to EU law for the reasons already visited several times in the Committee.

Amendment No.148 is a paving amendment for the next one. Amendment No. 149 seeks to ensure that where an SE is formed by the merger of two companies, both resident within one member state and both of which have UK permanent establishments, there is no charge to tax on capital gain assets held by those UK permanent establishments and transferred to the SE; for example, there is no taxable disposal of their UK business premises when the two UK permanent establishments are merged. It allows more flexibility for EU companies to merge into an SE, without incurring an unnecessary UK tax charge.

4.15 pm

It should be noted that there are a number of EU-resident companies that have UK premises that might perform such mergers; for example, a large proportion of those EU-resident companies are German, due to Germany's strength in the financial sector and German companies' involvement in the City of London. We also consider that this amendment and the following
 
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ones tie in with what the Chancellor said recently about making the EU rules for business more flexible.

Amendment No. 150 would remove a line that is unnecessary, as the conditions of proposed new section 140F(1)(d) to the Taxation of Chargeable Gains Act 1992 refer to a UK company merging into a non-UK company. Two existing UK companies cannot merge into each other, because there is no provision to do so under company law. Proposed new section 140F cannot apply if merging companies are not all resident in the same state anyway, and would have no purpose.

Amendment No. 151 addresses a situation where the SE issues shares to the shareholders of the merging companies as compensation for agreeing to the merger; typically, their shares in the pre-merger companies would then be cancelled. Such a merger under the relevant EU directive should qualify for such a relief, and there is no reason why UK shareholders should be denied the roll-over relief for shares in the SE just because the merging companies are based in the same member state. It should be remembered that two UK-resident companies are unlikely to undertake this because of the requirement that SEs must have worker representation on their boards.

Amendment No. 152 is similar to the previous amendments. It is intended to ensure that, where an SE is formed by the merger of two companies both of which are resident in one member state and both of which have UK permanent establishments, there is no charge to tax on intangible assets that are held by those UK permanent establishments and transferred to the SE—for example, there is no taxable disposal of their UK customer lists when the two UK permanent establishments are merged.

Amendment No. 153 is also similar to the previous amendments. The line it seeks to leave out is unnecessary, as the clause cannot apply—by virtue of proposed new section 87A(l)(d), which relates to the situation where a UK company transfers assets to a company that is not resident in the UK—when the merging companies are resident in the same member state.

Similarly, amendment No. 154 seeks to ensure that where an SE is formed by the merger of two companies both of which are resident in one member state and both of which have UK permanent establishments, there is no charge to tax on loan relationships held by those UK permanent establishments that are transferred to the SE; for example, there is no taxable disposal of their loans to UK customers, when the two UK permanent establishments are merged.

Amendment No. 156 is on a similar theme. It is designed to ensure that where an SE is formed by the merger of two companies both of which are resident in one member state and both of which have UK permanent establishments, there is no charge to tax on financial derivatives held by those UK permanent establishments that are transferred to the SE; for example, there is no taxable disposal of their interest rate swaps on their UK borrowings when the two UK permanent establishments are merged.
 
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