Clause 65 - Restrictions on set-off of pre-entry losses

Part of Finance Bill – in a Public Bill Committee am 4:30 pm ar 30 Mehefin 2005.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Richard Spring Richard Spring Shadow Minister, Treasury 4:30, 30 Mehefin 2005

These are probing amendments and I would be grateful if the Minister commented on them. They emerged from Law Society representations. I do not wish to detain the Committee long, but I want to set out some of the ideas that have been put to us. If some reassurance can be given, that will be valuable.  

Amendment No. 161 relates to the pre-entry loss rules that prevent capital gains tax groups buying in capital losses from other capital gains tax groups. There is no need for the requirement for the SE to be resident in the UK as there is already a requirement that the relevant assets are within the charge to corporation tax on capital gains; for instance, if the SE is not UK resident, there must be a UK taxable branch that is a permanent establishment of that SE. That introduces more flexibility into the SE rules.

Amendment No. 162 relates to the pre-entry loss rules in the Taxation of Chargeable Gains Act 1992. The pre-entry loss rules work to prevent the purchase of capital losses from outside the capital gains tax group to shelter future capital gains. The relevant event determines when the asset became pre-entry. The amendment seeks to ensure that these rules are not triggered on formation of an SE by merger, which will allow greater flexibility and ensure that where there is a merger, which requires a particular structure by way of the definition of merger in the Council directives relating to SE and mergers of publicly limited companies, the formation of the SE does not cause any existing pre-entry losses to lose their restricted pre-entry nature on the SE merger.

The clause has the same effect, provided that the company transferring the asset to the SE does not cease to exist as part of the process of forming the SE by merger. However, the requirements to form an SE by merger under the relevant EU company law regulations mean that the clause should not open such a door, as no publicly limited company is going to spend the money, make the public announcements and tie themselves into an SE and the issues involving worker representation on the board, in order to get around a small part of the capital gains tax rules that the Government have suggested they intend to overhaul radically, if not abolish, when they legislate for their major reform of corporate taxation.

Amendment No. 163 simply continues to address that issue in terms of the definition of groups related to this category.

I would be grateful if the Minister could give some reassurance to those who have raised with us concerns about these matters.