Clause 61 - Attribution of gains to members of non-resident companies

Part of Finance Bill – in a Public Bill Committee am 11:00 am ar 11 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 11:00, 11 Mehefin 2013

This clause, like clauses 26 and 30, provides us with an example of the Government’s approach to making legislation EU-compliant that even the leading bodies for the tax professionals have stated is not up to the mark. I will not repeat the damning assessment by the Chartered Institute of Taxation, which I have quoted previously, but I would be grateful if hon. Members bore it in mind when I put the points it raised to the Minister and ask him a few questions on the measure.

Of course we support the anti-avoidance aims of section 13, but concern has been expressed that the clause and the Government’s attempts to make the legislation EU-compliant will not achieve their stated aim. As I mentioned, the Chartered Institute of Taxation said in February:

“We have our doubts that the proposed exclusion for ‘economically significant activities’ is wide enough. We doubt whether the revised draft legislation would be EU compliant.”

It then set out in some detail its reasons for believing that. Although it welcomed the raising of the minimum participation threshold from 10% to 25%, the CIOT said:

“Because the proposed 25% threshold not only looks at holdings directly owned by the individual but also holdings owned by a wide range of other connected persons, it is far from clear that the increase in the threshold will by itself will prevent the freedom to move capital being also potentially engaged.”

Those concerns about clause 61 remain, as they do regarding clause 26, and the CIOT has publicly queried the basis on which the Government rejected its analysis of the provisions.

It is not only the CIOT that is concerned; the Institute of Chartered Accountants in England and Wales is concerned as well. In its response to the draft legislation, it said:

“It is our view that the amendments made to the draft legislation…do not increase the likelihood of the UK law being EU compliant; if anything the position is worse than previously.”

Clearly, it is imperative that the Government get this right. If they do not, we will be discussing it again in Finance Bill 2014 and, I am sure, many people hope we will be discussing the matter again in Finance Bill 2015. Although I appreciate that the Minister is not in a position to discuss at length the legal advice he may have received, can he at least explain the grounds upon which he has discounted the views of the Chartered Institute of Taxation and the Institute of Chartered Accountants?

Although clause 61 modifies section 13 of the Taxation of Chargeable Gains Act 1992 to make it EU-compliant, he will be aware of a number of concerns about section 13 that have not been addressed in the Bill. The Charity Tax Group, which represents more than 400 members, has highlighted three main issues with section 13 that affect charities with investment portfolios. It believes that section 13 is discriminatory because: it allows a charity to invest in a UK company but prohibits investment in, for example, a German company; charities are exempt from taxation on gains, so to be covered by section 13 is perverse, because there is no tax to avoid; and, finally, that it is often impossible to determine whether a charity has exceeded the 25%—previously 10%—limit, because its co-investors in a fund are treated as connected and  therefore have to be aware of the collective holding. Given that a charity often does not know who the other investors are, let alone their tax residence status, it may be impossible for the charity to determine whether it falls within the scope of section 13. I understand that the Charity Tax Group has been in discussions with HMRC regarding its section 13 concerns, so I would be grateful if the Minister provided some assurance that these matters are at least under review.