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.
I also have a number of examples where there may be an issue on which I
seek reassurance.
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.
10
am 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,
or some sort of plan to avoid stamp duty land tax, but about something
that is happening as a consequence of the ordinary workings of a
business which may cause particular concerns. There is also an issue,
if we are talking about an entirely legitimate series of transactions,
if the vendor has left the group, no longer has any control over what
happens with regard to the purchaser, and then finds itself ultimately
liable when it was not expecting it. A degree of uncertainty is created
here.
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. Mr.
Todd: There are rather too many
lawyers.
Kitty
Ussher: I would not wish to repeat that and have it
recorded in Hansard.
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
be owned by someone else. It is exactly the same if a group is sold.
There is still a change in the ownership of the asset. To suggest that
one scenario is acceptable and the other is not, ignores the reality of
the situation. That is why our proposal is as it is. He is within his
rights to oppose the clause if he thinks that we are handling the
matter
incorrectly. 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
concern about private equity funds raised by my hon. Friend the Member
for Cities of London and Westminster has not been
addressed.
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. 10.15
am
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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