I too welcome you back to the Chair, Mr. Gale.

Before setting out the background to clause 30 and schedule 6, I should like to acknowledge the point made by the hon. Lady about the importance of the leasing industry and the importance, therefore, of getting these matters right. As she told the Committee, schedule 6 introduces anti-avoidance legislation in response to disclosures that we have received about avoidance schemes being used that are designed to get round measures in the Finance Act 2006 to combat the loss of tax from the sale of companies leasing out plant or machinery.

In the early years of a profitable lease, lessor companies generated losses but in the later years the situation reversed: the lease became profitable, but tax was being lost because groups were selling lessor  companies to loss-making groups at just the time that the leasing transaction was about to become tax-profitable. The relevant provisions in the 2006 Act prevent a loss of tax when a lessor company leaves a profit-making group and becomes a member of a loss-making group by bringing into charge an amount that prevents the loss of tax when a lessor company is sold.

The disclosures that we received indicated that groups were avoiding the rules in two ways. One type of scheme was using legislation that enables a group to transfer leasing businesses without tax effect, rather than selling the lessor company and the other manipulated the balance sheet value of leased assets in a way that would reduce or eliminate the charge that should be brought into account to prevent the loss of tax.

Schedule 6 stops both types of scheme. First, it makes changes to the rules allowing groups to transfer businesses without tax effect; those rules are in section 343 of the Income and Corporation Taxes Act 1988. Changes to section 343 will mean that only transfers of assets between subsidiaries of the same parent company—and certain transfers involving consortium companies and partnerships—will benefit from tax neutrality. Where the new rules apply so that a transfer falls outside the existing section 343 provisions, the disposal of the assets of the business is treated as taking place at a value equal to the value of the asset unencumbered by the lease: that is, as if the lease did not exist. That creates a charge broadly equivalent to the effect of schedule 10 to the Finance Act 2006.

Secondly, the schedule adds two new paragraphs to schedule 10 on the sale of lessors. New paragraph 38A requires a company to ignore the consequences of arrangements entered into to secure a tax advantage, and new paragraph 38B requires a company to ignore liabilities when determining the value of its assets. Those changes will ensure that the sale of lessors legislation works as intended.

The hon. Lady’s two amendments are directed at the first of those anti-avoidance measures introduced by the schedule on the action that limits tax-neutral transfers. Amendment No. 66, as she explained, seeks to preserve tax neutrality for transfers between a subsidiary and its ultimate parent company—a group’s principal company. I shall explain why I shall ask the Committee to reject it, but I assure her that it is not because of any drafting error.

I suggest that the amendment is unnecessary. In the vast majority of cases, leasing businesses are conducted via wholly-owned subsidiaries, and I am certainly not aware of any pressing commercial reasons for transferring a leasing business to a principal company. In contrast, the transfer of leasing businesses to a principal company increases the risk of tax avoidance for two reasons. First, while we are aware that some leasing is conducted through principal companies, we know that transfers of businesses to holding companies have featured, not uncommonly, in tax-motivated arrangements enabling groups to utilise tax losses more efficiently.

Secondly, the transfer of a leasing business to a principal company could dilute the leasing business so that the holding company would not be treated as a lessor company. If that were to happen, the sale of  lessors legislation would not apply and the business could be transferred from the principal company without triggering the anti-avoidance rules. The amendment does not provide any protection against abuses along those lines.

The issue that the hon. Lady has raised was raised by us with the industry. We asked it in January to provide evidence that the restriction that is being introduced here on transfers to and from principal companies will hinder normal commercial transactions. No such evidence has been provided to us.

There are real worries about tax avoidance, and I shall give an example. For some foreign banking groups, the principal company is the main bank, and the UK branches are, not infrequently, loss making. Some such groups have purchased lessor companies, but rather than transferring the business to existing leasing subsidiaries, they transfer it to the branch so as to use its accumulated tax losses against the leasing profits. I have not seen any evidence that those transfers are anything other than tax motivated, and I do not think it would be right to preserve what are, in such instances, clearly tax avoidance opportunities. I have certainly not seen any evidence that transfers to and from holding companies are necessary for the commercial operation of a business, but in contrast, there is evidence that such transfers have offered and could continue to offer potential for avoidance. On those grounds, I hope that the Committee will reject the amendment.

Amendment No. 67 would, as the hon. Lady explained, change the value at which plant or machinery is treated as transferred for tax purposes, and the asset would be treated as transferred at the price it would fetch on the open market, encumbered by the lease, rather than the value of the asset unencumbered by the lease, which is the value provided for by the schedule as it stands. Those values are often similar, but the crucial problem is that it is possible that the value of the asset encumbered by a lease could be manipulated in a way that would reduce or even eliminate the impact of the anti-avoidance measure, whereas the market value unencumbered by the lease cannot be manipulated in that way. That is why we wanted that to be the value to which the legislation refers.

The amendment could, inadvertently, mean that the measure does not meet its aim. I hope that, given that explanation, the hon. Lady will feel able to withdraw it, but if not I will certainly ask the Committee to reject it.