Written Ministerial Statements
Monday 9 November 2009
Treasury
ECOFIN
The Chancellor of the Exchequer (Mr. Alistair Darling): The Economic and Financial Affairs Council will be held in Brussels on 10 November 2009. The following items are on the agenda:
Follow-up to the October European Council
The presidency will provide a de-brief following the meeting of the European Council in Brussels at the end of October. This should focus on work to be taken forward by ECOFIN on financial supervision, fiscal and financial exit strategies, crisis management and the successor to the Lisbon strategy.
Follow-up to the G20 meeting on 6 and 7 November
The presidency and the UK will provide a de-brief on the meeting of G20 Finance Ministers and Central Bank Governors in St. Andrews.
Sustainability of public finances
Ministers will discuss next steps following the publication of the Commission's sustainability report. The Government recognise the importance of sustainable public finances, and are committed to the consolidation path set out in Budget 2009.
Better regulation-Reduction of administrative burdens
Ministers will discuss and agree conclusions on a Commission action programme, calling for more work to reduce administrative burdens by 25 per cent. by 2012. The Government support progress in this area and have pledged their own commitment to meet the 25 per cent. reduction target by 2010.
a)Proposal for a Council directive on administrative co-operation inthe field of taxation
The Council will be asked to agree a general approach on the directive, which improves exchange of information and brings the EU into line with OECD standards by removing the right to refuse information on grounds of bank secrecy. The UK supports the proposal and further work in this area, which links to the wider G20 agenda on good governance in taxation.
b) VAT treatment of postal services
ECOFIN will be asked to provide political guidelines on how to take further the issue of the VAT treatment of postal services.
c) Proposal for a Council directive amending Directives 92/79/EEC, 92/80/EEC and 95/59/EC on the structure and rates of excise duty applied on manufactured tobacco
The Council will be asked to reach a political agreement on the tobacco directive, which will set out the structure and rates of excise duties applied on manufactured tobacco products as well as implementation dates. The UK supports work in this area, which has the potential to reduce revenue lost from cross-border shopping and smuggling of tobacco products into the UK from low tax EU member states.
Corporate Taxation
The Financial Secretary to the Treasury (Mr. Stephen Timms): I am today announcing the Government's intention to introduce in the next Finance Bill a further change to the rules on how groups of companies are taxed when they buy back their issued debt at a discount to the amount borrowed. The further change is in addition to the changes I previously announced in my statement on 14 October.
In my statement on 14 October, I announced that the Government proposed to deal with the circumstances in which companies could buy back their debt at a discount to the amount borrowed without being taxed. I announced changes that would tighten the rules dealing with debt buybacks to ensure that only those debt buybacks that are undertaken as part of genuine corporate rescues will benefit from discount not being subject to tax.
The statement made clear that even if a company benefited from the discount not being taxed under the new proposals, any subsequent cancellation of the debt by the new creditor will result in the debtor being taxed on the previously untaxed discount.
HM Revenue and Customs (HMRC) published more detail on these proposals on 22 October, available at: www.hmrc.gov.uk/drafts/debt-buyback.htm, which clarified the circumstances in which the discount on the debt buyback would not be taxed and the mechanism by which a subsequent release of such a debt would result in the debtor being taxed on the discount.
It has since come to light that groups of companies may be able to avoid the discount, that was not taxed at the time of the buyback, being taxed on the subsequent release of the debt. Groups may be able to achieve this by means of the new creditor accepting ordinary shares in the debtor in order to release the debtor from its liability.
The Government are therefore proposing to introduce additional legislation to prevent this. The new legislation will ensure that where the discount on a buyback is not taxed, any subsequent release of the debt where the consideration for the release is ordinary shares in the debtor or the entitlement to any such shares then the debtor will be taxed on the previously untaxed discount arising on the debt buyback.
The further legislation announced today will have effect in relation to releases of debt that occur on or after today in relation to any debt that was the subject of a debt buyback occurring on or after 14 October and to which the proposed legislation announced on 14 October will apply.
Draft legislation will today be published on HMRC's website covering both the 14 October and today's announcements.
I am also today announcing the Government's intention to present to Parliament in the next Finance Bill amendments to the "debt cap" provisions set out in Schedule 15 of Finance Act 2009.
The debt cap forms part of the important reforms to the taxation of the foreign profits of UK companies, which the Government introduced in Finance Bill 2009. The cornerstone of the foreign profits package was the wide-ranging dividend exemption, effective from July this year, which was strongly welcomed by business.
This allows UK companies to bring profits back to the UK free of UK tax. To make the dividend exemption affordable, the Government worked closely with business to introduce a debt cap guarding against excessive debt funding of UK companies, which will be effective from 1 January 2010.
The amendments announced today will ensure that the debt cap functions as intended, providing Exchequer revenue protection while at the same time keeping the compliance burden as small as possible. Specifically, there will be the following amendments made:
Legislation will be introduced to remove accountancy mismatches in the application of the gateway test to ensure that a consistent way of measuring liabilities is used in arriving both at the worldwide group's gross debt and the net debt of UK companies.
Legislation will be introduced to put beyond doubt that preference shares are excluded from the relevant liabilities both of the worldwide group and of UK companies when applying the gateway test.
Legislation will be introduced to extend the definition of "financial instrument" to include all derivatives, such as options, swaps, futures, forwards and contracts for differences. This is because the current definition, which relies on the FSA handbook, may exclude certain derivatives which are routinely traded by many banks and other financial institutions. The change will ensure that groups are not disqualified from the "qualifying financial services groups" exemption because they undertake such dealings.
Legislation will be introduced allowing companies to elect that no debt cap disallowance is allocated to them. This will benefit companies, such as those involved in whole business securitisations, that need certainty of tax treatment in order to protect their credit ratings. This legislation will also mandatorily restrict the allocation of disallowances to dual resident investment companies.
Legislation will be introduced to extend the definition of "financing income", so that guarantee fees are included as financing income. This provides consistency of treatment where guarantee fees are paid within a group, or are deemed to be paid under transfer pricing legislation, since a guarantee fee is already treated as a financing expense of the payer.
Legislation will be introduced to refine the definition of a group treasury company for the purposes of the debt cap rules so as to exclude trading companies performing a peripheral group treasury company function.
Legislation will allow interest paid by UK subsidiaries of tax-exempt non-departmental public bodies to disregard interest they pay to that body for debt cap purposes.
Legislation will be introduced to clarify what is meant by "ancillary costs" relating to amounts borrowed, for the purpose of computing the available amount.
Legislation will be introduced to deal with the case where external borrowing is undertaken by a partnership in which a UK company is a partner. This will ensure that the available amount reflects the economic cost to the group of borrowing by partnerships in which it has an interest, and is computed in a way consistent with the UK tax treatment of partnership debts.
Legislation will be introduced to ensure that certain partnerships, formed under the laws of an overseas territory, qualify for the collective investment scheme exclusion for the purposes of identifying an ultimate parent company under the debt cap rules. Where an overseas corporate fund vehicle has a majority stake in a number of commercially unrelated groups of companies, this will minimise the possibility of all of its controlled holdings being treated as a single group for debt cap purposes.
Legislation will be introduced to ensure that securitisation companies, which come within the special tax regimes we introduced in 2005, are excluded from the debt cap rules. This will ensure that the "tax-neutral" status of these companies is not jeopardised and will avoid any adverse effect on their credit ratings.
A new power will be introduced to allow the definitions of the available amount and the tested expense amount to be changed or added to through secondary legislation. Regulations made under this power will be capable of having effect from 1 January of the calendar year in which they are made. This will ensure that difficulties arising where the accounting treatment for external borrowing in the consolidated accounts differs from that in a UK company's individual accounts can be addressed through regulations.
A technical paper providing further details of all of these changes is being issued on HMRC's website today. Draft legislative amendments will be published alongside the 2009 Pre-Budget report for comment.
Monetary Policy Committee
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): A Treasury minute on the contingent liabilities arising from the extension of the Asset Purchase Facility is being published today. Copies are available in the Library of the House.
Business, Innovation and Skills
Higher Education Funding and Student Finance (Review)
The Minister for Higher Education and Intellectual Property (Mr. David Lammy): My noble Friend the Secretary of State for Business, Innovation and Skills has today made the following statement:
Today I have appointed Lord Browne of Madingley to chair an independent review of higher education funding and student finance. In addition to Lord Browne, the review will have six other members chosen for the breadth and depth of their experience and expertise. These are Michael Barber, Diane Coyle, David Eastwood, Julia King, Rajay Naik and Peter Sands. I have discussed these appointments and the terms of reference for the review, set out below, with the hon. Member for Havant (Mr. Willetts). We are both committed to ensuring the independent nature of this important piece of work. The review fulfils the commitment made by the Government during the Commons stages of the Higher Education Act 2004 to review the operation of variable tuition fees after these had been in force for three years.
Variable tuition fees have provided institutions with a secure income stream worth £1.3 billion per year, which has helped to sustain the long-term financial health and viability of this crucially important sector. Over this time, the number of students attending university has continued to rise, as has the number coming from lower-income backgrounds.
To continue to thrive in the coming decade, institutions will need to respond to the changing needs of students, businesses and the wider community as well as adapt to demographic changes and growing international competition.
The independent review will consider the balance of contributions from all those who benefit from the higher education system. It will consult with all those with an interest in higher education in this country, including current and potential students. The review will also convene an advisory forum to draw on the views and expertise of a range of representatives with interests in higher education.
The review will report to Government with recommendations next year. Any changes implemented following the review would come into effect in the academic year 2011-12 at the earliest.
The review will analyse the challenges and opportunities facing higher education and their implications for student financing and support. It will examine the balance of contributions to higher education funding by taxpayers, students, graduates and employers. Its primary task is
to make recommendations to Government on the future of fees policy and financial support for full and part-time undergraduate and postgraduate students.
1. In assessing options the review will be expected to take into account:
The goal of widening participation to ensure that the benefits of higher education are open to all who have the talent and motivation to succeed; the avoidance of the creation of barriers to wider access; the impact of the system of bursary payments; promoting fair access to all institutions; facilitating choice and a diversity of access routes to higher education, including through links with further education colleges; and the scope for a greater diversity of models of learning, such as modular and part-time study and the availability of student support for such courses.
Affordability for students and their families during their studies and afterwards; impact on public finances including affordability, sustainability and value for money for the taxpayer.
The desirability of simplification of the system of support.
2. The review will take evidence from within higher education and among those with an interest in its success, including an advisory forum to be convened by the chair.
3. The review will work with the Office for Fair Access and HEFCE and collaborate with Professor Adrian Smith's review of postgraduate study. Its work will also take into account the conclusions of Professor Sir Martin Harris's review on promoting access to higher education.
4. The review is expected to report by the autumn of 2010.
Defence
Detention Policy
The Secretary of State for Defence (Mr. Bob Ainsworth): UK forces in Afghanistan form part of the NATO-led International Security Assistance Force (ISAF) and contribute to the efforts of the international community to assist the Government of Afghanistan to expand security and build the rule of law.
The Taliban insurgents are ruthless and indiscriminate in their attempts to kill and maim our troops and the Afghan people.
In his statement on the 26 February 2009, Official Report, column 394 on the detention and transfer of persons captured by UK forces in Iraq and Afghanistan, my right hon. Friend the then Secretary of State for Defence set out the value of detention operations to our campaign in Afghanistan. Detention operations by UK forces are conducted in accordance with, and the holding of detainees in UK facilities meets, the standards required by, the relevant provisions of international law.
In the light of the evolving threat to our forces, we have continued to keep our approach to these operations under review. Under NATO guidelines individuals detained by ISAF are either transferred to the Afghan authorities within 96 hours for further action through the Afghan judicial process or released. And in the majority of cases, the UK forces will operate in this manner. However, in exceptional circumstances, detaining individuals beyond 96 hours can yield vital intelligence that would help protect our forces and the local population-potentially saving lives, particularly when detainees are suspected of holding information on the placement of improvised explosive devices.
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