Clause 180 - Controlled foreign companies and foreign permanent establishments

Part of Finance Bill – in a Public Bill Committee am 4:30 pm ar 19 Mehefin 2012.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Nigel Mills Nigel Mills Ceidwadwyr, Amber Valley 4:30, 19 Mehefin 2012

I want to make some brief remarks in praise of the way the Government have handled this reform. It is a testament to how it should be done. There has been long consultation on a complex area of law that has been in desperate need of reform. The matter has gone backwards and forwards, and there have been several drafts to try to get it right and as simple to work as possible. That is a credit to how tax policy should be formed.

It is, in essence, a necessary part of every developed modern corporate tax regime to try to stop businesses diverting profits into low-tax territories by moving assets or income offshore. We must have a measure that does that, but it leaves us with a rather blunt instrument when every UK company that tries to set up an overseas subsidiary is dragged into complex compliance rules and has to try to work out whether what it has done entirely commercially is treated as tax avoidance.

What we have here is a gateway test; businesses can look at a much simpler, shorter set of rules to see whether they have to apply the longer, more complex ones. That is a decent structure for how those operations should work. All those businesses that should not be caught and clearly are caught will have no tax exposure here. They can work that out pretty quickly and get on with what we want them to do—growing and investing. I do not say that we have simple, clear, easy-to-understand legislation; we have clearly ended up with something long and complex, but that is inevitable given the nature of the subject.

We have had a lot of discussion on various topics today. Where the rules have ended up is pretty good—about as good as we can get. I would hope that the vast majority of innocent businesses that are not trying any naughty tax planning will not have any real problem complying with them, though there will, no doubt, be the odd exception to that. That is where we want to be. It is right that the rules focus on the mischief—that is, businesses trying to avoid paying UK tax on UK-sourced income. We quite rightly do not wish to tax overseas-sourced trading income in the UK; we have all accepted that. The rules do not do that.

We have even accepted that we do not tax dividends from companies based overseas that pay another tax in the UK. They can pay those back to the UK to be reinvested tax-free. It would be bizarre to try to get there through an anti-avoidance measure. On balance, I think the measure is as good as it can be. I commend the Minister on it, and hope that he can speedily get these welcome reforms safely on the statute book.