Proceeds of Crime Bill – in a Public Bill Committee am 4:30 pm ar 5 Chwefror 2002.
I beg to move amendment No. 650, in page 267, line 12, leave out from '203' to end of line 15 on page 269 and insert—
'(d) an interim receiver appointed under section 251;
(e) an interim administrator appointed under section 259.
Provisions relating to Part 5
Introductory
2 (1) The vesting of property in the trustee for civil recovery or any other person by a recovery order is referred to as a Part 5 transfer.
(2) The person who holds the property immediately before the vesting is referred to as the transferor; and the person in whom the property is vested is referred to as the transferee.
(3) Any amount paid in respect of the transfer by the trustee for civil recovery, or another, to a person who holds the property immediately before the vesting is referred to (in relation to that person) as a compensating payment.
(4) If the recovery order provides for the creation of any interest in favour of a person who holds the property immediately before the vesting, he is to be treated instead as receiving (in addition to any payment referred to in sub-paragraph (3)) a compensating payment of an amount equal to the value of the interest.
(5) Where the property belongs to joint tenants immediately before the vesting and a compensating payment is made to one or
more (but not both or all) of the joint tenants, this Part has effect separately in relation to each joint tenant.
(6) Expressions used in this paragraph have the same meaning as in Part 5 of this Act.
(7) ''The Taxes Act 1988'' means the Income and Corporation Taxes Act 1988 (c. 1), and ''the Allowances Act 2001'' means the Capital Allowances Act 2001 (c. 2).
(8) This paragraph applies for the purposes of this Part.
3 (1) If a gain attributable to a Part 5 transfer accrues to the transferor, it is not a chargeable gain.
(2) But if a compensating payment is made to the transferor—
(a) sub-paragraph (1) does not apply, and
(b) the consideration for the transfer is the amount of the compensating payment.
(3) If a gain attributable to the forfeiture under section 297 of property consisting of
(a) notes or coins in any currency other than sterling,
(b) anything mentioned in section 288(6)(b) to (d), if expressed in any currency other than sterling, or
(c) bearer bonds or bearer shares,
accrues to the person who holds the property immediately before the forfeiture, it is not a chargeable gain.
(4) This paragraph has effect as if it were included in Chapter 1 of Part 2 of the Taxation of Chargeable Gains Act 1992 (c.12).
Income Tax and Corporation Tax
Accrued income scheme
4 If a Part 5 transfer is a transfer of securities within the meaning of sections 711 to 728 of the Taxes Act 1988 (transfers with or without accrued interest), sections 713(2) and (3) and 716 of that Act do not apply to the transfer.
Discounted securities
5 In the case of a Part 5 transfer of property consisting of a relevant discounted security (within the meaning of Schedule 13 to the Finance Act 1996 (c.8)), it is not to be treated as a transfer for the purposes of that Schedule.
Rights to receive amounts stated in certificates of deposit etc.
6 In the case of a Part 5 transfer of property consisting of a right to which section 56(2) of the Taxes Act 1988 applies, or a right mentioned in section 56A(1) of that Act (rights stated in certificates of deposit etc.), it is not to be treated as a disposal of the right for the purposes of section 56(2) of that Act.
Non-qualifying offshore funds
7 In the case of a Part 5 transfer of property consisting of an asset mentioned in section 757(1)(a) or (b) of the Taxes Act 1988 (interests in non-qualifying offshore funds etc.), it is not to be treated as a disposal for the purposes of that section.
Futures and options
8 In the case of a Part 5 transfer of property consisting of futures or options (within the meaning of paragraph 4 of Schedule 5AA to the Taxes Act 1988), it is not to be treated as a disposal of the futures or options for the purposes of that Schedule.
Loan relationships
9 (1) Sub-paragraph (2) applies if, apart from this paragraph, a Part 5 transfer would be a related transaction for the purposes of section 84 of the Finance Act 1996 (c.8) (debits and credits brought into account for the purpose of taxing loan relationships under Chapter 2 of Part 4 of that Act).
(2) The Part 5 transfer is to be disregarded for the purposes of that Chapter, except for the purpose of identifying any person in whose case any debit or credit not relating to the transaction is to be brought into account.
Exception from paragraphs 4 to 9
10 Paragraphs 4 to 9 do not apply if a compensating payment is made to the transferor.
Trading stock
11 (1) Sub-paragraph (2) applies, in the case of a Part 5 transfer of property consisting of the trading stock of a trade, for the purpose of computing any profits of the trade for tax purposes.
(2) If, because of the transfer, the trading stock is to be treated for that purpose as if it had been sold in the course of the trade, the amount realised on the sale is to be treated for that purpose as equal to its acquisition cost.
(3) Sub-paragraph (2) has effect in spite of anything in section 100 of the Taxes Act 1988 (valuation of trading stock at discontinuance).
(4) In this paragraph, trading stock and trade have the same meaning as in that section.
Capital Allowances
Plant and machinery
12 (1) If there is a Part 5 transfer of plant or machinery, Part 2 of the Allowances Act 2001 is to have effect as if a transferor who has incurred qualifying expenditure were required to bring the disposal value of the plant or machinery into account in accordance with section 61 of that Act for the chargeable period in which the transfer occurs.
(2) But the Part 5 transfer is not to be treated as a disposal event for the purposes of Part 2 of that Act other than by virtue of sub-paragraph (1).
13 (1) If a compensating payment is made to the transferor, the disposal value to be brought into account is the amount of the payment
(2) Otherwise, the disposal value to be brought into account is the amount which would give rise neither to a balancing allowance nor to a balancing charge.
14 (1) Paragraph 13(2) does not apply if the qualifying expenditure has been allocated to the main pool or a class pool.
(2) Instead, the disposal value to be brought into account is the notional written-down value of the qualifying expenditure incurred by the transferor on the provision of the plant or machinery.
(3) The notional written-down value is—
QE–A
where—
QE is the qualifying expenditure incurred by the transferor on the provision of the plant or machinery,
A is the total of all allowances which could have been made to the transferor in respect of the expenditure if—
(a) that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure, and
(b) all allowances had been made in full.
(4) But if—
(a) the Part 5 transfer of the plant or machinery occurs in the same chargeable period as that in which the qualifying expenditure is incurred, and
(b) a first-year allowance is made in respect of an amount of the expenditure,
the disposal value to be brought into account is that which is equal to the balance left after deducting the first year allowance.
15 (1) Paragraph 13 does not apply if—
(a) a qualifying activity is carried on in partnership,
(b) the Part 5 transfer is a transfer of plant or machinery which is partnership property, and
(c) compensating payments are made to one or more, but not both or all, of the partners.
(2) Instead, the disposal value to be brought into account is the sum of—
(a) any compensating payments made to any of the partners, and
(b) in the case of each partner to whom a compensating payment has not been made, his share of the tax-neutral amount.
(3) A partner's share of the tax-neutral amount is to be determined according to the profit-sharing arrangements for the twelve months ending immediately before the date of the Part 5 transfer.
16 (1) Paragraph 13 does not apply if—
(a) a qualifying activity is carried on in partnership,
(b) the Part 5 transfer is a transfer of plant or machinery which is not partnership property but is owned by two or more of the partners (''the owners''),
(c) the plant or machinery is used for the purposes of the qualifying activity, and
(d) compensating payments are made to one or more, but not both or all, of the owners.
(2) Instead, the disposal value to be brought into account is the sum of—
(a) any compensating payments made to any of the owners, and
(b) in the case of each owner to whom a compensating payment has not been made, his share of the tax-neutral amount.
(3) An owner's share of the tax-neutral amount is to be determined in proportion to the value of his interest in the plant or machinery.
17 (1) Paragraphs 12 to 16 have effect as if they were included in section 61 of the Allowances Act 2001.
(2) In paragraphs 15 and 16, the tax-neutral amount is the amount that would be brought into account as the disposal value under paragraph 13(2) or (as the case may be) 14 if the provision in question were not disapplied.
Industrial buildings
18 (1) If there is a Part 5 transfer of a relevant interest in an industrial building, Part 3 of the Allowances Act 2001 is to have effect as if the transfer were a balancing event within section 315(1) of that Act.
(2) But the Part 5 transfer is not to be treated as a balancing event for the purposes of Part 3 of that Act other than by virtue of sub-paragraph (1).
19 (1) If a compensating payment is made to the transferor, the proceeds from the balancing event are the amount of the payment.
(2) Otherwise—
(a) the proceeds from the balancing event are the amount which is equal to the residue of qualifying expenditure immediately before the transfer, and
(b) no balancing adjustment is to be made as a result of the event under section 319 of the Allowances Act 2001.
20 (1) Paragraph 19 does not apply to determine the proceeds from the balancing event if—
(a) the relevant interest in the industrial building is partnership property, and
(b) compensating payments are made to one or more, but not both or all, of the partners.
(2) Instead, the proceeds from the balancing event is the sum of—
(a) any compensating payments made to any of the partners, and
(b) in the case of each partner to whom a compensating payment has not been made, his share of the amount which is equal to the residue of qualifying expenditure immediately before the Part 5 transfer.
(3) A partner's share of that amount is to be determined according to the profit-sharing arrangements for the twelve months ending immediately before the date of the Part 5 transfer.
21 Paragraphs 18 to 20 have effect as if they were included in Part 3 of the Allowances Act 2001.
Flat conversion
22 (1) If there is a Part 5 transfer of a relevant interest in a flat, Part 4A of the Allowances Act 2001 is to have effect as if the transfer were a balancing event within section 393N of that Act.
(2) But the Part 5 transfer is not to be treated as a balancing event for the purposes of Part 4A of that Act other than by virtue of sub-paragraph (1).
23 (1) If a compensating payment is made to the transferor, the proceeds from the balancing event are the amount of the payment.
(2) Otherwise, the proceeds from the balancing event are the amount which is equal to the residue of qualifying expenditure immediately before the transfer.
24 (1) Paragraph 23 does not apply to determine the proceeds from the balancing event if—
(a) the relevant interest in the flat is partnership property, and
(b) compensating payments are made to one or more, but not both or all, of the partners.
(2) Instead, the proceeds from the balancing event are the sum of—
(a) any compensating payments made to any of the partners, and
(b) in the case of each partner to whom a compensating payment has not been made, his share of the amount which is equal to the residue of qualifying expenditure immediately before the transfer.
(3) A partner's share of that amount is to be determined according to the profit-sharing arrangements for the twelve months ending immediately before the date of the transfer.
25 Paragraphs 22 to 24 have effect as if they were included in Part 4A of the Allowances Act 2001.
Research and development
26 If there is a Part 5 transfer of an asset representing qualifying expenditure incurred by a person, the disposal value he is required to bring into account under section 443(1) of the Allowances Act 2001 for any chargeable period is to be determined as follows (and not in accordance with subsection (4) of that section).
27 (1) If a compensating payment is made to the transferor, the disposal value he is required to bring into account is the amount of the payment.
(2) Otherwise, the disposal value he is required to bring into account is nil.
28 (1) Paragraph 27 does not apply to determine the disposal value to be brought into account if—
(a) the asset is partnership property, and
(b) compensating payments are made to one or more, but not both or all, of the partners.
(2) Instead, the disposal value to be brought into account is equal to the sum of any compensating payments.
29 Paragraphs 26 to 28 have effect as if they were included in Part 6 of the Allowances Act 2001.
Employee etc. Share Schemes
Share options
30 Section 135(6) of the Taxes Act 1988 (gains by directors and employees) does not make any person chargeable to tax in respect of any gain realised by the trustee for civil recovery.
Conditional acquisition of shares
31 Section 140A(4) of the Taxes Act 1988 (disposal etc. of shares) does not make the transferor chargeable to income tax in respect of a Part 5 transfer of shares or an interest in shares.
Shares acquired at an undervalue
32 Section 162(5) of the Taxes Act 1988 (employee shareholdings) does not make the transferor chargeable to income tax in respect of a Part 5 transfer of shares.
Shares in dependent subsidiaries
33 Section 79 of the Finance Act 1988 (c.39) (charge on increase in value of shares) does not make the transferor chargeable to income tax in respect of a Part 5 transfer of shares or an interest in shares.'.
The amendment would replace part 2 of schedule 7 with a new part 2 that contains revised provisions. It would not make a fundamental change to the underlying principle of that part of the schedule. The
amended version merely sets out the provisions in more detail and clarifies the operation of the schedule.
Part 2 of the schedule provides for the changes that are necessary to the tax rules to prevent a charge to income tax, capital gains tax or corporation tax arising on the transferor when assets vest in the trustee for civil recovery, or in another person, under part 5 of the Bill.
The provisions are, by nature, technical tax points. Generally, the provisions in part 2 of the schedule would apply when property vests in a trustee under civil recovery proceedings or is forfeited under clause 297. Without these special provisions, such vesting or forfeiture would count for capital gains purposes as disposal at market value, and any resulting gains would be chargeable. Income tax charges may also arise instead of a capital gains charge on the disposal of certain assets.
It would be inappropriate for tax to be charged in that way. It is intended that recovery or forfeiture will recover the full amount of the proceeds of unlawful conduct, and nothing would be left with the transferor to cover any extra charge as tax. However, if property owned in part by a third party is recovered or forfeited, normal tax rules will apply to any compensating payment made to them under clause 272.
I have been away for a few moments trying to ensure that things were under control in another Committee Room, but I thought that I should return and see that everything was under control here. If by any chance in the few moments that I was away I missed the answer to the questions that I am about to ask, I apologise. I am sure that you will remind me that had I been here, I would have heard the answers, Mr. McWilliam.
I have admitted many times that I am not a lawyer. I am not an accountant or a tax expert either, so it would be useful if some things were explained. Part 1 of the schedule says:
Sections 75 and 77 . . . shall not apply.
That is so that tax is not collectable, I assume, but I would be obliged if the Minister would say why those two sections should not apply.
I wish to consider paragraph 2(1)(b), in part 2. There have been other occasions when you have been in the Chair and references to the European Union and the euro have cropped up, Mr. McWilliam. I said this morning that I had got as far as the section—
Order. May I assist the hon. Gentleman? He is referring to the schedule as it is, not the amendment.
I was trying to save you a stand part debate, Mr. McWilliam, but if you would rather I kept my comments for later, I shall gladly do so.
Actually, the hon. Gentleman has spared us both some difficulty. The amendment is so wide that I have no intention of allowing a stand part debate.
In that case, Mr. McWilliam, I anticipated your thinking admirably, and I am impressed by my own judgment,
I was saying—before I was politely interrupted—that for 38 sittings and a few minutes I have avoided every temptation to enter a EU or euro debate. Indeed, you have demonstrated in the past that if I tried to do so, you would not let me, Mr. McWilliam. I preface my question with those remarks because I am not trying to start such a debate, but I notice that paragraph 2(1)(b) states that
property consisting of notes or coins in any currency—
Order. Although the hon. Gentleman is referring to paragraph 2(1)(b)—
Where is paragraph 2(1)(b)?
In the original schedule. The hon. Gentleman is referring to paragraph 2(1)(b), but the amendment would take that out.
- Although it may be fair to refer to the original schedule in a stand part debate, referring to words that are to be removed from it is out of order now.
Yes, I see that point, but although the amendment would take the provisions out, we may have to vote on that, and whether I vote to take them out or leave them in depends on my having the relevant information to enable me to make a judgment.
Order. The hon. Gentleman has not read the amendment. The provisions reappear.
But not in paragraph 2(1)(b).
I think that at this stage it is best to say that I give up on that one. I doubt whether I want to try your patience so early in the afternoon, Mr. McWilliam.
I wish to make a general comment—perhaps one that the hon. Member for Glasgow, Pollok (Mr. Davidson) would make, too, were he not still away licking his wounds from Scotland's defeat on Saturday afternoon. If I understood the Minister correctly, one of the reasons for the schedule, amended or not, is to leave money available to pay the tax bills of someone who has had the proceeds of his crime taken away. If that is what is being suggested, I find it quite surprising.
Property that is the proceeds of crime, whether it is cash, goods or anything else, should be confiscated. I think that the Committee is united in that belief. I am assuming that tax will not arise on the proceeds of crime, as I am not sure that the Inland Revenue is entitled to benefit from the proceeds of crime by taxing it. I find it extraordinary that the proceeds of crime could be used to pay a tax bill.
I have waited for my hon. Friend to finish his second point, but I wanted to ask about his first point. The words that he was going to ask the Minister about in the original paragraph 2(1)(b) have reappeared in amendment No. 650, the Government's complicated replacement of new schedule 7. In the new part 2 of schedule 7 those words reappear in what—if the amendment is
accepted—will be paragraph 3 (3)(b). Now that I have directed my hon. Friend on that matter, perhaps he can, while staying within the Chairman's ruling, return to his original point.
I am grateful to my hon. Friend. I was ranting in my attempt to make that point, and I am not sure—even with his assistance—that I have the courage to return to it. I am sure that he can give a far better explanation of it than I could, so perhaps he will make a contribution later. I am grateful to him for trying to get me out of the hole into which I originally dug myself.
It is important that the thinking behind the provision be explained. Are we saying that money that is the proceeds of crime can be retained to pay other tax bills? It would be more sensible to confiscate the proceeds of crime, and if a person has tax bills, he should find the money to pay them in a way that does not involve the proceeds of crime. The Minister is being soft in a way that the hon. Member for Glasgow, Pollok would not approve of if he were present. I am being firm on his behalf, and I hope that the Minister will respond.
In response to my hon. Friend's invitation, I am not sure that I will be able to alight—by osmosis, as it were—on his point about the original wording of paragraph 2(1)(b), which the amendment would replace with paragraph 3(3)(b).
I hope that the hon. Gentleman will not do that. He was not present to hear my ruling, but those words reappear in the amendment in a different place.
That is what I was referring to. I was present to hear your ruling, Mr. McWilliam, and in my intervention on my hon. Friend the Member for Spelthorne (Mr. Wilshire), I said that the words reappear in amendment No. 650 in paragraph 3(3)(b) of schedule 7 in its new form. I see that you are assenting to that, Mr. McWilliam, so I am on the right track.
Some weeks ago, we discussed whether certain provisions needed to be added in respect of bearer bonds and bearer shares. I believe that earlier in our proceedings the Government tabled some amendments that dealt with currency other than sterling, and bearer bonds and bearer shares. No doubt the Minister will tell us whether schedule 7 had to be fully rewritten to make it fit logically with those earlier amendments. I suspect that that is the reason.
If I understood my hon. Friend the Member for Spelthorne correctly, he was worried about currency other than sterling. We want to hear a little more detail from the Minister—more than appears in proposed paragraph 3(3)(b) and (c). Will he say how currency other than sterling—or bearer bonds or bearer shares—will be used in practice?
I am grateful to my hon. Friend. I have been listening carefully, and now that he has explained what he thought I was trying to say, I am quite impressed with what I was saying.
I will wait to hear the Minister's answer.
If the hon. Member for Spelthorne had any credibility with the Committee—I say that in a light-hearted way—he completely shot it through when he asked us to accept the idea that he had been into another Committee to see that things were in order, and had then returned to our proceedings to ensure that things were in order here. That is not the interpretation of his activities over our previous 38 sittings that many of my hon. Friends would have given—but perhaps that is unfair. When the hon. Gentleman told you that he was going to give up at this point, Mr. McWilliam, some Committee members might—very unfairly—have wished that he had given up a while ago, instead of waiting until the final sitting.
Things are getting better as the afternoon wears on. I sometimes wonder whether I get things right, but to be told that I have not been doing things as Labour Committee members would like me to is the biggest compliment that has been paid to me in our 38 sittings so far.
We always try to please. I was amused by the thought of the hon. Gentleman keeping things in order.
I hesitate to say this, but when the Minister was explaining the amendments, I thought that I detected that he did not understand what the schedule was about any more than I did, and that that was why he brought his remarks to a speedy conclusion. If that is the case, is it not a little dangerous for him to criticise my hon. Friend for his intervention, because he might have been capable of shedding a little light on the matter?
Mr. Wilshire rose—
Order. The hon. Gentleman cannot intervene on an intervention.
Yes, we must now try to prevent the hon. Gentleman and his hon. Friend the Member for Beaconsfield from intervening. In the last sitting on this very long Bill, no one is going to get an admission from the Minister that he does not know what he is talking about—I wish to make it very clear to the hon. Member for Beaconsfield that I am not going to do that.
The substantive point that the hon. Member for Spelthorne lighted upon, after he gave up on his tussle with the Chair, was that he was worried that I was playing my usual role—of which I have often been accused by my hon. Friend the Member for Glasgow, Pollok—of being soft, by allowing people to get away with reneging on a tax liability.
The schedule does not do that. The rewritten part of it deals with the tax liability that would accrue on property that had been subject to civil recovery. The hon. Member for Spelthorne missed the start of my contribution to the debate.
That was probably the best bit.
When we had removed the entire proceeds of crime by the civil recovery process, it would be inappropriate for us to say, ''By the way, although we have taken all that away from you, a tax
liability remains, which you must now pay.'' If that is being soft, then I am guilty.
The hon. Gentleman is probably right that if my hon. Friend the Member for Glasgow, Pollok were present, he would be more than happy to inflict a double hit on the people concerned, not only by using civil recovery to take away from them 100 per cent. of the proceeds of their crime, but by charging them capital gains tax, income tax, inheritance tax and any other tax that he could think of. That is not the Government's policy. The schedule ensures that that will not happen, but I do not think that that is being soft.
I turn to how the schedule will work. As I thought I said in my introductory comments, our amendments will not make any substantive changes. We are merely spelling matters out in more detail.
I admit to the hon. Member for Surrey Heath (Mr. Hawkins) that we were under pressure to get the Bill ready. It is a long and complicated Bill, and it was necessary to rewrite it, tidy it up and make absolutely sure that the intentions were clear, and all the tax regulations that could otherwise be brought to bear in such circumstances were removed.
The main thrust of the schedule is designed to achieve tax neutrality in two ways. First, it turns off the tax charges that might otherwise arise on transferral or when assets have been forfeited or vested in a trustee for civil recovery. Secondly, it allows normal tax rules to apply when a payment has been made to an innocent third party for assets recovered by the trustee and effectively returned to their ownership. I hope that that is clear, and that the hon. Gentleman will agree to the schedule.
I am grateful for the Minister's explanation. If that is the aim of the schedule as amended, Opposition Members would not want to stand in the way of its being agreed to.
I may have an opportunity to return briefly to this subject at the end of our proceedings this afternoon, but may I say now that as a piece of text, the amendment is almost unintelligible? I mean that kindly to those who drafted it. Even as a lawyer, I was none the wiser or better informed at the end of reading it than at the beginning. That highlights the merit of explanatory notes, which we do not receive when an amendment of such a size and volume comes before us. I may be able to comment further at the end of our proceedings, but we are having to take a lot on trust from the Minister. In the absence of a tax expert among Committee members, it is difficult to disentangle whether the amendment will achieve what the Minister says is its objective.
Before I put the Question, it may be worth pointing out that I used to chair the Edinburgh tax commission.
Amendment agreed to.
Schedule 7, as amended, agreed to.