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

Part of Finance Bill – in a Public Bill Committee am 4:45 pm ar 30 Mehefin 2005.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of John Healey John Healey The Financial Secretary to the Treasury 4:45, 30 Mehefin 2005

The clause adapts the special anti-avoidance rules in schedule 7A of the Taxation of Chargeable Gains Act 1992. Without the changes, companies might be able to use the formation of an SE by merger as a means of tax avoidance. In addition, there would also be a disparity and an inconsistency of treatment compared with wholly domestic mergers.

The hon. Gentleman asked me to indicate why we feel the amendments are either deficient or not acceptable. Amendment No. 161 seeks to remove the restriction of the clause solely to those SEs that are resident in the UK. If accepted, that would mean that in theory the legislation was capable of applying to any SE wherever resident. That is beyond the competence of the UK Government. Consequently, while I understand that the amendment is well intentioned, it is technically deficient.  

Amendment No. 162 is, again, undoubtedly well intentioned, but its adoption would create ambiguity as to the meaning of the ''most recent relevant event''. That is because our existing legislation relating to relevant events does not cater for the situation where an SE is formed by merger and it is not the company which joins a new group. Instead, the effect of the merger might be that assets are transferred to the new UK-based SE. If the amendment were accepted, there would be a gap and businesses might be uncertain about whether the desired continuity would apply to mergers to form UK SEs.

Finally, amendment No. 163 seeks to remove subsections (4) and (5) from Clause 65. It would have the unfortunate effect of removing the anti-avoidance protection that is in the clause. It would also result in more favourable treatment for the formation of SEs by merger compared with wholly domestic mergers. I am sure that that is not the hon. Gentleman's intention. On that basis, I hope that he will not press the amendment to a Division.