Schedule 3 - Qualifying Scheme

Part of Finance Bill – in a Public Bill Committee am 3:45 pm ar 23 Mehefin 2005.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 3:45, 23 Mehefin 2005

I shall respond to the hon. Gentleman's probing amendment and try to give him the reassurance he seeks. First, I shall explain why the Government will not accept amendment No. 48. The amendment would change the part of schedule 3 that deals with schemes having a hybrid effect. Schemes will have a hybrid effect for the purpose of the arbitrage rules if they include a hybrid instrument or a defined type of share interest. Schedule 3 is, in effect, a list of those instruments. The amendment would exclude from the range of instruments identified,   those of a type that are traded on a recognised exchange. The Government cannot accept the restriction of the definition for two reasons. First, the list of instruments having a hybrid effect covers the kind of instruments that have been shown to lend themselves to use in schemes designed to avoid UK tax. Many of those instruments are traded on a recognised stock exchange, but that does not mean that they cannot be used for tax avoidance. The automatic exclusion of a traded instrument, as proposed by the amendment, would simply mean that avoidance could continue through the simple expedient of listing instruments on any recognised stock exchange. That is probably not what the hon. Gentleman wants to happen.

The Government's second concern is that the wording of the amendment does not even require the instrument to be traded itself—it refers simply to a class of such instruments. The effect of the amendment would be to remove most hybrid instruments from the scope of the provisions, even though they form part of a scheme that is designed to give rise to a UK tax advantage. Consequently, that could be rather expensive, as I am sure the hon. Gentleman will accept.

I assure the hon. Gentleman that the genuine placement of an instrument into the market will not normally be caught by the arbitrage deduction rules, as the instrument is unlikely to be part of a scheme that had a main purpose of obtaining a UK tax advantage. Further details on the issue can be found in the guidance issued by HMRC. I appreciate from earlier comments by the hon. Gentleman about an error in the guidance that he will want to check that—it is draft guidance that is still under discussion.

For the reasons that I have set out, I hope that the hon. Gentleman will understand why the Government will not accept the amendment and go down that route—he said that it is a probing amendment so he will no doubt not push for a vote. I hope that he accepts my reassurance that the provision is not a blanket approach but is fairly specific to avoidance within the arbitrage regime.