It is a pleasure to serve under your chairmanship this morning, Mr Sheridan. The clause is designed to align the tax treatment of transfers between UK resident companies with transfers between UK and non-UK resident companies, by allowing transfers between UK companies to be treated as distributions for the purposes of UK tax legislation. I understand that the proposal arises from the joint working group and was identified as an area of difficulty by Her Majesty’s Revenue and Customs. Has the Minister considered the impact of cuts to HMRC’s budget on its ability to deliver such technical changes, which go back to a repeal of advance corporation tax by the Finance Act 1998?

As a rule, we permit a company to make dividend distributions only up to the balance of earnings that are available for distribution according to its most recent audited accounts. Some exceptions, of course, exist—for example, for distributions of company shares in the event of winding up.

In 2009, new rules replaced the system for tax and dividends from the UK and overseas companies following a legal ruling the year before in which the European court decided to exempt European Union and European economic area residents’ subsidiary distributions from tax in the UK rather than taking an approach to taxing dividends depending on the residency of the dividend payer.

The 2009 Act, however, requires some alterations. As is often the case with technical regulations, unintended issues arose. Some were addressed in the Finance Bill last year, but they need further attention today, hence the reason for the clause. The changes will apply only to groups of companies operating in the UK and making distributions between themselves. Is the Minister aware of any anomalies relating to the tax treatment of  distributions from non-UK companies, and will the changes have any impact on dividends and trusts that receive dividends from such companies? How many transfers caught by this rule does he estimate take place every year and how many companies does he estimate that it applies to?

In the impact assessment it was noted that there would be a small cost to HMRC associated with this measure. Has the Minister calculated what the cost will be and why it occurs?