Mr. Browne: I think the Minister dealt with the concerns raised in amendment No. 187 which stands in my name and that of my hon. Friend. I tabled the amendment after I received a letter from PricewaterhouseCoopers, which was no doubt also sent to the Minister and Conservative Members. The letter drew attention to a fictional case study, which was none the less a perfectly reasonable hypothetical case, and expressed concern that the wide drafting of section 416 would inadvertently lead to the withdrawal of group relief. I should be grateful if the Minister could confirm that the example would be addressed as my amendment would then have achieved its objective. PWC wrote:
Where the top company in a group is owned by three unconnected shareholders (each holding 40 per cent. 30 per cent. and 30 per cent.), section 416(3) ICTA 1988 would treat them as together controlling the top company. If one shareholder leaves, they will no longer be considered as controlling the company together with others and group relief withdrawal will be triggered.
Three other examples were given in the letter. I appreciate that this is a complex area, but will the Government amendments address that concern? PWC also suggested creating a statutory definition of an SDLT group. Has that, too, been provided for by the Government?
Mr. Gauke: I am grateful to the Economic Secretary for her comments. She will be aware that a number of representations have been made on the clause. It might be helpful if I briefly outline how it is supposed to work.
Paragraph 1 of schedule 7 of the Finance Act 2003 allows companies to claim group relief on transfers of assets between group members. A restriction allows clawback when the purchaser ceases to be a member of the same group as the vendor. For perfectly obvious reasons, the use of group relief would otherwise be a rather easy way to avoid SDLT. The problem the Government are seeking to address is that if first the vendor and then the purchasing company leaves the group, it is no longer possible to make the clawback.
The clause allows clawback where the vendor leaves the group and then within three years there is a subsequent change of control of the purchaser. There was certainly concern about the possibly retrospective nature of that provision and I am grateful to the Government for tabling amendment No. 158, which addresses that concern. However, we are still left with a structure such that if the vendor transfers property to another group company, the vendor leaves the group and then there is a change of control of the purchaser, clawback may occur.
The Minister has addressed one of the concerns that was raised. If the purchaser was part of a public group, arguably any change in the shareholders could trigger these provisions, which is not the Governments intention. None the less, given the comments made by the Economic Secretary, there could still be an issue in the event of the purchaser being part of a public group that is then taken over. In those circumstances, the effect of a change of control would be a three-year poison pill for companies that have carried out transactions of the sort to which we have referred. That may well have some significance for the liquidity of the stock market.
I would be grateful if the Minister could confirm that that interpretation is correctthat the amendments tabled by the Government will, as well as rightly addressing circumstances where there is a change of just one shareholder, address circumstances where the purchaser is part of a group that is taken over.
Similarly, where the purchaser is part of a group that is taken over and executive share options are exercised, could that conceivably trigger a change of control for these purposes? Equally, a corporate restructuring that would involve the insertion of a new holding company above the purchaser but below the top code, would not result in an ultimate change in economic ownership, but may well be a change of control for the purposes of clause 93. That is not an uncommon restructuring for a private company that is preparing for an initial public offering. In those circumstances, that change of control and therefore clawback mayperhaps unintentionallybe triggered.
There are also circumstances where the purchaser groups majority shareholder is a partnership. That is common with regard to private equity arrangements, which are normally structured through partnerships, and if there is any change in the partnersthe investors in a particular fund that may be a majority shareholder in the purchasera change of control would be triggered.
In such circumstances, I do not think that we are talking about the mischief that the Government legitimately seek to address. We are talking not about a tax scheme,
Amendment No. 159 tries to address the matter by limiting these provisions to arrangements that were made with a view to avoiding stamp duty land tax effectively, because they were all part of one particular plan. There are various ways in which that could be addressed, but we have tabled the wording proposed by the Law Society on the matter. The hon. Member for Taunton referred to the definition of an SDLT group, which is another way of addressing that particular matter.
We remain concerned that the provisions of clause 93notwithstanding the Government amendments, which, in themselves, are welcomeare too limited. In particular, the reference to lone creditors does not, as far as we can see, address the circumstances that I have outlined. Perhaps the Economic Secretary can provide some clarification. Therefore, we are not yet satisfied that the concerns, which, I think the Government recognise, are legitimate, have been addressed.
Sadly, the hon. Member for Wolverhampton, South-West (Rob Marris) is not part of the Committee proceedings this year. He was for the previous two years. He was always keen to point out that he disliked beginning a paragraph with the word, But. He would consistently object to it. In his absence, I draw the Committees attention to clause 93(4) and proposed new paragraph 4ZA(4) of schedule 7 to the Finance Act 2003, which begins with that word. I am also not sure that Government amendment No. 153, which ends
(but see sub-paragraph (6A)),
is the most elegantly drafted. I make those points in honour of the hon. Member for Wolverhampton, South-Westpeople in my party quote him quite a lot at the momentbut I would be grateful if the Economic Secretary addressed my main concerns with clause 93.
The Chairman: Order. In paying that tribute, the hon. Gentleman has simultaneously, craftily, crept into a stand part discussion. I must warn the Committee that if there are any remarks to be made in a stand part debate, they should be made at this point.
Peter Viggers (Gosport) (Con): If I have appeared so far to represent the Trappist tendency of the Conservative party, it is not because I have not been following the debate with keen interest. On several occasions, I have been minded to table amendments similar to those tabled by Conservative Front Benchers, so I congratulate them on the solid and professional job that they are doing of criticising the Bill.
It is not frivolous to complain about the language. But and see are not very good lawyerly wordsthey are a little casualso I hope that my hon. Friends comment will be fed into the well oiled Treasury machine.
Mr. Mark Field (Cities of London and Westminster) (Con): Given your point on stand part remarks, Mr. Cook, I should like briefly to say that the amendments would be quite sensible. In fairness to the Government, they have tried to deal with a number of concerns with the clause with their own amendments.
I wish to make this narrow point. We understand the Governments desire to ensure that the changes come into play when there is a withdrawal of group relief. Equally, the notions of change of control and group relief in the modern commercial world are changing. As the Economic Secretary will be aware, the emergence of private equity funds and the way in which they operate are changing, and the welcome prevalence of executive share option schemes brings into play a range of new organisations within business that could fall foul of what might traditionally have been regarded as a change of control by group relief provisions.
I hope that the Economic Secretary will give a satisfactory answer even if she does not accept the Opposition amendment, and that she will be able to give a broader overview. Many of the professional advisers who have contacted us fear that the clause will go far wider. Will she assuage their concerns?
Kitty Ussher: I am grateful to all hon. Members for raising those important issues. I reassure the Committee that I shall personally send a copy of the Hansard report of this sitting to my hon. Friend the Member for Wolverhampton, South-West. I am sure that he will be delighted that his concerns have been raised by Opposition Members. Our lawyers will take account of the point, too. I am not a lawyer, so I am unable to judge whether the measure is in lawyerly language, but I presume that it is at least correct in law.
The answer to the two questions asked by the hon. Member for Taunton is yes. We are addressing both issues that were raised by PricewaterhouseCoopers. It is probably obvious from my earlier comments that the Government have benefited from a close dialogue with various industry bodies, and I place my thanks to them on the record.
The hon. Member for South-West Hertfordshire raised the commonly described concern that the withdrawal of relief will represent a poison pill for the property industry. That is why the clause will make amendments to the Finance Act 2003 to ensure that the legislation will affect only those transactions that occur after 13 March this year. Anyone using the exemption will now be aware of the potential consequences should there be a change in control of the purchasing company within three years of the transfer of the assets. I hope that that explanation answers the point.
The hon. Gentlemans substantive question was: why are we seeking clawback of SDLT group relief in circumstances where there is no disposal of a property-holding company by the group? Without the vendor exemption, group relief would have been withdrawn at the point that the vendor left the group. We believe that it is reasonable that we should seek to withdraw where there is a change in control of the purchasing company. The asset within the purchasing company would then
I will discuss the arrangements test and amendment No. 159 that the hon. Gentleman tabled with text suggested by the Law Society. The Law Society also expressed concern to us that the clause will catch innocent transactions and create uncertainty for taxpayers who do not engage in tax avoidance. Amendment No. 159 deals with the involvement of such transactions. It is not clear to us, however, that the arrangements test would ensure that all the scenarios presented by the Law Society would be excluded, nor would we wish that to be the case in all situations.
The arrangements test has been suggested as a method of distinguishing between what are regarded as commercial transactions and tax-avoidance schemes. Indeed, many of the commercial scenarios presented use the same loophole that has been exploited for avoidance purposes. It has only been by exploiting the existing legislation that groups have been able to avoid the withdrawal of group relief in the past.
Amendment No. 159 would open potential avoidance possibilities. For example, it would require HMRC to demonstrate that arrangements are in place for the control of the purchaser, but not the vendor. It would be relatively easy for avoidance schemes to devise around that test, thus reducing the effectiveness of the clause. We also feel that arrangements tests are difficult to administer and create uncertainty in the industry. Clearance application requests to HMRC would also increase as groups sought to obtain certainty that they would not be caught.
We believe that we have already addressed the Law Societys main concern with the Government amendment to ensure that legislation will apply only to transactions after 13 March. We have introduced a further amendment to exclude loan creditors from the changing control tests. The Government amendments were requested in representations and we feel that they will assist industry without traducing the effectiveness of the clause. Its effectiveness would be traduced if we accepted amendment No. 159 and I invite members of the Committee to resist it.
Mr. Gauke: May I address the comments made by the Economic Secretary? On the issue of the poisoned pill, as in my earlier comments I acknowledge that this measure is not retrospective in the sense that it relates only to transactions after 13 March. However, there is still an issue of the poisoned pill. For example, it is still possible for a transaction to occur when the vendor leaves a group and there is a subsequent change in control of the purchaser. There would still be a poisoned pill event in that circumstance. The concern therefore remains.
The Economic Secretary stated that the asset will be owned by somebody else because there will be a change in control of the property. She did not address my example of a new holding company being inserted into a group. As I understand it, that will still constitute a change of control, even though the economic ownership will remain exactly the same. As far as I can see, the
Kitty Ussher: I apologise for my oversight in not addressing the point raised by the hon. Member for Cities of London and Westminster, who was concerned that private equity would be adversely affected. We do not think that that is the case and would be concerned if it were. Like all groups in the property industry, private equity will need to consider the clause when a vendor leaves the group. To clarify the matter, we intend to work with the industry to produce guidance that we hope will put any of those concerns to rest and provide the reassurance that is sought. That will take place.
Mr. Gauke: I am grateful for that intervention, although it was more of an assertion that the measure will not affect private equity firms rather than evidence that it will not. As we shall see later, the Government are relying on guidance rather than statute. I am not persuaded by the Economic Secretary with regard to flaws in amendment No. 159. An arrangements test would, I think, address the Governments legitimate concern and would not cause the problems that I have identified. I am inclined to push amendment No. 159 to a vote and will not seek leave to withdraw it.
Amendment agreed to.
Amendment made: No. 154, in clause 93, page 56, line 3, at end insert
(6A) Sub-paragraph (4) does not apply where
(a) there is a change in the control of the purchaser because a loan creditor (within the meaning of section 417(7) to (9) of the Taxes Act 1988) obtains control of, or ceases to control, the purchaser, and
(b) the other persons who controlled the purchaser before that change continue to do so..[Kitty Ussher.]
Amendment proposed: No. 159, in clause 93,page 56, line 6, at end insert
(8) The provisions of sub-paragraph (4) shall not apply unless, at the effective date of the transaction, there are arrangements in existence by virtue of which, at that time or some later time, a person has or could obtain, or any persons together have or could obtain, control of the purchaser but not of the vendor..[Mr. Gauke.]
Question put, That the amendment be made:
The Committee divided: Ayes 8, Noes 15.
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