Clause 28 - Notices under sections 24 and 26

Finance Bill – in a Public Bill Committee am 5:00 pm ar 23 Mehefin 2005.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Amendment made: No. 29, in clause 28, page 26, line 24, leave out 'have been reasonably' insert 'reasonably have been'.—[Mr. Philip Hammond.]

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

Photo of Frank Cook Frank Cook Llafur, Stockton North

With this it will be convenient to discuss the following:

New clause 1—Advance clearance—

'(1) This Chapter shall not have effect in respect of any company falling within either section 24(1) or section 26(1), in any case where the commissioners for Her Majesty's Revenue and Customs have on application of the company notified the company that the Board are satisfied that the transaction does not have a main purpose of achieving a UK tax advantage.

(2) Any application made under subsection (1) above shall be in writing, delivered either by post or by electronic mail, and shall contain particulars of the operations that are to be effected and the Commissioners may, within 30 days of the receipt of the application or of any further particulars previously required under this subsection, by notice require the applicant to furnish further particulars for the purpose of enabling the Commissioners to make their decision and if any such notice is not complied with within 30 days or such longer period as the Commissioners may allow, the Commissioners need not proceed further on the application.

(3) The Board shall notify their decision to the applicant within 30 days of receiving the application or, if they give a notice under subsection (2) above, within 30 days of the notice being complied with.

(4) If the Commissioners notify the applicant that they are not satisfied that the transaction in question does not have a main purpose of achieving a UK tax advantage or do not notify their decision to the applicant within the time required by subsection (3) above, the applicant may within 30 days of the due date for a decision in accordance with this section require the Commissioners to transmit the application, together with any notice given and further particulars furnished under subsection (2) above, to the Special Commissioners and in that event any notification by the Special Commissioners shall have effect for the purposes of subsection (1) above as if it were a notification by the Commissioners.

(5) If any particulars furnished under this section do not fully and accurately disclose all facts and considerations material for the decision of the Commissioners or the Special Commissioners, any resulting notification of a decision by the Commissioners or Special Commissioners shall be void.'.

New clause 2—Right of appeal—

'Appeals against a notice issued by the Commissioners of Her Majesty's Customs and Revenue under section 24 or section 26.

(1) Any company to whom a notice has been given under section 24 or 26 may within 30 days by notice to the Special Commissioners appeal on the grounds that section 24 or section 26, as appropriate, does not apply to the company in respect of the transaction or transactions in question, or that the adjustments directed to be made are not appropriate adjustments.

(2) If the Commissioners or the company are dissatisfied with the determination of the Special Commissioners the company or the Commissioners may, on giving notice to the clerk to the Special Commissioners within 30 days after the determination, require the appeal to be re-heard by the tribunal, and the Special Commissioners shall transmit to the tribunal any document in their possession which was delivered to them for the purposes of the appeal.

(3) Where notice is given under subsection (2) above, the tribunal shall re-hear and re-determine the appeal and shall have and exercise the same powers and authorities in relation to the appeal as the Special Commissioners might have and exercise, and the determination of the tribunal thereon shall be final and conclusive.  

(4) On an appeal under subsection (1) and (3) above the Special Commissioners or the tribunal shall have power to cancel or vary a notice under section 24 or section 26 of this Act, or to vary or quash an assessment made in accordance with such a notice, but the bringing of an appeal or the statement of a case shall not affect the validity of a notice given or of any other thing done in pursuance of those sections pending the determination of the proceedings.'.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Clause 28 deals with the procedural rules for companies that are subject to a notice under clauses 24 or 26. I do not have a tremendous amount to say about clause 28, but our new clauses have been grouped with it. We aim to resolve the uncertainty that we are told still exists by introducing a binding statutorily provided advance clearance regime that, if operated efficiently and consistently, will quickly restore taxpayers' confidence.

New clause 5 sets out a procedure for advance clearance on application to the commissioners. Subsection (1) would remove companies that have sought and received advance clearance from consideration under clauses 24 and 26; subsection (2) states that any application made under subsection (1) can be in writing, delivered by post or electronic mail, and shall contain particulars of the operations that are to be effected. There is also a provision within subsection (2) to allow the commissioners to require further details for the purpose of their decision within 30 days of the receipt of the application or of any further particulars previously required. It tries to keep the process moving fairly speedily.

There is also provision that if such requested information is not received within 30 days of the applicant being required to give it, and if any such notice is not complied with within 30 days or any longer period that the commissioners may allow, the commissioners need not proceed further. In other words, they may treat the taxpayer as having abandoned the application.

Subsection (3) requires the commissioners to notify the applicant of their decision within 30 days, or, if they have requested more information, within 30 days of the receipt of that information. Subsection (4) gives the applicant a right to refer any rejected application to the special commissioners who have the power to give clearance in the same way that the commissioners do, and subsection (5) makes any decision by the commissioners or special commissioners void if information provided by the company is not accurate or does not accurately disclose all the facts.

Since the Finance Bill was published before the election it has been changed and the guidance notes now state that there will be a clearance regime, albeit not one with any statutory force. We welcome the introduction of the clearance regime that the Government have announced, but we recommend that such clearances be within a statutory framework, provided that the clearance, if obtained based on accurate and full information, is binding on the Revenue by statute for a period of time.

Practitioners tell me that some of the existing non-statutory clearance methods work better than others from a taxpayer's point of view. I say that to be   consensual. That is why we seek to include a statutory provision in this case. The new clause would enable taxpayers, when implementing a financing structure for their UK or overseas investments, to get advance clearance from the Revenue. That would give the taxpayer certainty rather than considerable uncertainty, which the new rules might otherwise create.

Guidance notes are no guarantee of certainty and the existence of those notes leaves a great deal of room for interpretation. The taxpayer has the additional problem that guidance notes can be withdrawn or redrafted at any time; the taxpayer always has to face the possibility of a change in the guidance that governs the effect of any part of the legislation.

The rules that we propose mirror those for pre-clearance of share reorganisations and the transactions and securities legislation. I note that most jurisdictions, including the United States, Australia, New Zealand and the Netherlands, have advance clearance systems to obtain pre-transaction binding rulings for such transactions. Such a clearance system is intended to be a practical way for taxpayers and the Inland Revenue to achieve certainty and avoid complicated arguments at a later date.

Another example has come to my attention today. Apparently, the Belgian authorities have now taken steps to implement a decision that was taken in 2003 to give Belgium what they describe as

''an efficient, proactive and flexible ruling practice''— this is the interesting part—

''in order to remain attractive for foreign investors and to provide the necessary certainty to Belgian taxpayers.''

As I have conducted my preparatory discussions in the past few weeks, it has surprised me how often Belgium has come up.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The hon. Gentleman has no idea.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The right hon. Lady, who has knowledge of Belgium, expresses some reaction to that. I remember working occasionally in Belgium a decade or so ago when, it would be fair to say, the country was not characterised as a place that was radically reforming its legislation to make itself more flexible and dynamic. However, it is interesting that some of the countries that had developed somewhat rigidly structured regimes that were not business friendly have now realised that to compete they have to change their regimes and make themselves more attractive to business.

One trap that we sometimes fall into in this place is stereotyping. We have ideas about different countries and how responsive to business their regimes are, but the world can change quickly and we can find that countries that were traditionally regarded as business friendly have allowed themselves to lag behind—I name no names; Committee members will draw their own conclusions—while others that were traditionally regarded as not particularly business friendly have galvanised themselves, not for fun or to risk losing tax revenue that would otherwise have benefited their taxpayers, but because they have worked out that having a more business-friendly environment that   encourages investment and inward business location leads in the medium term to more revenue rather than less and thus a greater ability to provide the good quality public services that people in all countries, western, advanced or otherwise, want.

Photo of Christopher Huhne Christopher Huhne Shadow Minister, Treasury

I am grateful to the hon. Gentleman for drawing international parallels. We broadly support the new clauses, so does he agree that there are also precedents within United Kingdom statutes—for example on the taxation of capital gains—that we could commend to the Minister?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am sure that the Minister will explain why the Government think that, in this case, a non-statutory regime is preferable. It is important to have that debate, because, as the hon. Gentleman will know, there are many people outside the Committee and many practitioners in the field who believe that the Bill, because of its complexity and potential for genuine uncertainty, if not disagreement, is a good candidate for a statutorily enforceable pre-clearance regime.

Photo of Rob Marris Rob Marris Llafur, Wolverhampton South West 5:15, 23 Mehefin 2005

The new clause is a plucky little measure. Is the hon. Gentleman proposing that there should be a charge, or will it be free tax and accountancy advice for multinational companies?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

It is not free tax advice. The experience of pre-clearance regimes shows that if they work properly, they save resources on both sides. The Revenue has limited resources. If a pre-clearance regime is working properly, the Revenue, having agreed in advance the details of how that scheme will be treated, will not have to spend large amounts of time trawling taxpayers' returns to ascertain whether they comply with the scheme. A pre-clearance regime is intended as a protection for the taxpayer, although I suggest that it could also be of benefit to the Revenue. However, its principal purpose is neither of those, but to ensure that we do not inadvertently inflict a negative burden on the UK economy through the creation of uncertainty and that we maintain the UK's position as a relatively attractive place for inward investment.

New clause 2 aims to enable the taxpayer to have a clear right of appeal against a Revenue notice per se. If I have interpreted the Bill correctly, the Minister will tell me that there is a right of appeal because the taxpayer in receipt of a notice will do what he has to do—make his self-assessment return—and if the Revenue disagrees with it, the right of appeal will arise in the normal way. I understand that perfectly.

However, we would rather that there were the ability to appeal against the issue of a notice, rather than just against the assessment. Subsection (1) gives a company given a notice under clause 24 or 26 30 days to appeal to the special commissioners on the grounds that those clauses do not apply to them in respect of the transaction or transactions in question. Subsection (2) gives both the company and the commissioners the right to appeal against a decision by the special commissioners within 30 days of the determination of the appeal.  

The company or the commissioners can require the appeal to be reheard by the tribunal. Special commissioners must transmit any relevant documents that they have to the tribunal for the purpose of that rehearing. Subsection (3) gives the tribunal the same powers that the special commissioners have under subsection (1), and subsection (4) defines the power of the special commissioners and the tribunal with regard to altering or cancelling a notice under clauses 24 or 26. They will have the power to alter or cancel a notice, or vary or quash an assessment made in accordance with such a notice. I accept that they would have a power to vary or quash an assessment under the present appeal regime, but they would not have the power to cancel the notice.

The Minister will tell us that a notice does not really matter and ask why anyone would want to appeal against one, or have one withdrawn. However, a company may wish to establish that a notice has been wrongly issued and does not fall within the scope of the legislation, not only for the purposes of the immediate transaction in hand but for gaining certainty about that transaction or class of transaction. We see no logical reason why there should not be a properly defined appeal procedure against the issue of a notice, just as there is such a procedure against the issue of an assessment.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I was very interested in what the hon. Gentleman said, and particularly in the length of time he took to cover even the bullet points of his two new clauses—one can only imagine what it would take to make them work in the legislation. As I was listening, I mused on both his new clauses. What exactly would they add in principle? The hon. Gentleman talked about the principle, but did not tell us what it was. What rights for and services to the taxpayer that are not already provided for would the new clauses add? To pose it the other way, what do they add for the poor taxpayer? More legislation—

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

You are a fine one to talk about more legislation.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The Opposition are always talking about not wanting more legislation, but here they are adding it when it is not necessary. They should not be surprised when I point that out to them.

It is a brave individual who will go to a multinational with a highly complex deal and explain that the time delays involved in new clause 1 in getting their clearance are worth it. Those multinationals will have a lot to say about competitiveness, speed of business and how to attract inward investment. The hon. Gentleman's proposal adds nothing to what is already in the legislation, and I shall explain why.

To provide the certainty of the effect of the legislation, HMRC has published guidance and is accepting applications in an informal clearance procedure. The difference between formal and informal is whether the procedure is legislated for, but I am talking about what it actually does—the hon. Member for Braintree and I had an exchange a long time ago about the procedure being binding. HMRC's informal clearance procedure is for applications on a pre or post-transaction basis.  

By adopting an informal process, which works well for other anti-avoidance measures, companies are provided with the flexible system that they want, under which they will not feel obliged or pressured to seek formal clearance in every case, with all the costly bureaucracy and fees that go with ensuring that their approach is agreed. Instead, they need only ask for assistance when they are uncertain of the operation or application of the rules. The process will also provide certainty for HMRC and will make it clear that it considers itself to be bound by its clearance, as I said to the hon. Member for Braintree earlier. That was also confirmed by my hon. Friend the Financial Secretary to the Treasury on Second Reading.

There is a clearance procedure if a company is in doubt, and it will do all the things that the procedure proposed by the hon. Member for Runnymede and Weybridge suggests—and faster. If we had a formal procedure pushing all applications into the system, regardless of whether there is doubt, there would be more in the system to be considered so one would have to talk about time periods, as the hon. Gentleman has with his proposed new clause. Frankly, I would love to be in the room when the hon. Gentleman tells a multinational company with a highly complex deal on which it wants clearance that it will take a maximum of 30 days to sort it out. Companies will probably want it to be sorted out a little faster than that—that is what they currently tell the Revenue. What is the difference between the procedures? The only difference is that the hon. Gentleman wants the procedure written in legislation, but then it would have all the consequences that I have explained.

Companies are telling us that they want binding clearance, they want to come to us only when they are in doubt, they want the procedure to be speedy and they want it to be always carried out by the same unit in the Revenue so that there is consistency. That is precisely what we propose. The hon. Gentleman's new clause is not necessary to provide the certainty, security and support that companies seek. Indeed, it would have every danger of becoming a bureaucratic and unwieldy regime.

Photo of Christopher Huhne Christopher Huhne Shadow Minister, Treasury

I am interested by the Paymaster General's line of argument, because it is entirely open to the Revenue to move more rapidly than is suggested in any provision laid down in the legislation. Given the line of argument that she is developing, perhaps she would like to put something on the record about the normal time scale that she would advise the Revenue to apply in responding to requests made under the informal procedure that she proposes.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

That was covered on Second Reading by my hon. Friend the Financial Secretary.  

The Revenue will have finite resources. If there is a statutory regime for clearance where even schemes that do not need it, because they are perfectly straightforward and no dispute is involved, go into that system and resources are consumed, the choice is a longer delay or not to do something else in the tax system.

We have sought to give everything that businesses required from this regime and to target it effectively by saying that where they are uncertain and therefore are asking for formal clearance, it is provided.

On the argument relating to the appeals procedure in new clause 2, the hon. Member for Runnymede and Weybridge is quite right: I am bound to say that the appeals mechanism that would be inserted by that new clause is based on a fundamental misunderstanding by those who drafted it for him of the way that notices and self-assessment work. If a company is served a notice and does not think that it is caught by the legislation and has not operated any of the mechanisms that are available to it, it does not have to do anything. The notice does not bring anything into charge. It simply requires a company to take account of the arbitrage legislation when making its self-assessment.

If HMRC disagrees with that self-assessment on the arrangements, it must challenge using the existing self-assessment provisions, which already contain an appeal route to protect the company. I should also point out that new clause 2 would give rise to uncertainty were it be adopted, as it refers to terms not used elsewhere in the arbitrage legislation. In particular, it refers to changes that are ''directed to be made''. As I have mentioned, notices issued by HMRC will not direct that changes must be made. They prompt on the basis of the arbitrage legislation.

New clause 1 is not necessary because all the arrangements that the hon. Gentleman seeks are in place: there is speedy resolution, an appeals procedure in terms of asking for pre-clearance, and a guarantee that the decision from the Revenue is binding. In addition, the appeals procedure is in place in relation to the self-assessment. I ask a simple question: why duplicate? The new clause is not necessary and therefore the Government are not minded to accept it.

Question put and agreed to.

Clause 28, as amended, order to stand part of the Bill.

Clauses 29 and 30 ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. Watson.]

Adjourned accordingly at twenty-nine minutes past Five o'clock till Tuesday 28 June at half-past Ten o'clock.