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PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES Public Bill Committee FINANCE BILL (Except clauses, 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules) Eleventh Sitting Thursday 6 June 2013 (Morning) CONTENTS CLAUSES 43 to 45 agreed to. SCHEDULE 20 agreed to. CLAUSES 46 and 47 agreed to. Adjourned till this day at Two o’clock. PUBLISHED BY AUTHORITY OF THE HOUSE OF COMMONS LONDON – THE STATIONERY OFFICE LIMITED £5·00 PBC (Bill 001) 2013 - 2014 Members who wish to have copies of the Official Report of Proceedings in General Committees sent to them are requested to give notice to that effect at the Vote Office. No proofs can be supplied. Corrigenda slips may be published with Bound Volume editions. Corrigenda that Members suggest should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons, not later than Monday 10 June 2013 STRICT ADHERENCE TO THIS ARRANGEMENT WILL GREATLY FACILITATE THE PROMPT PUBLICATION OF THE BOUND VOLUMES OF PROCEEDINGS IN GENERAL COMMITTEES © Parliamentary Copyright House of Commons 2013 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 337 Public Bill Committee6 JUNE 2013 Finance Bill 338 The Committee consisted of the following Members: Chairs: †MR DAVID AMESS,MR DAVID CRAUSBY † Ashworth, Jonathan (Leicester South) (Lab) † Mearns, Ian (Gateshead) (Lab) † Baker, Steve (Wycombe) (Con) † Menzies, Mark (Fylde) (Con) † Cryer, John (Leyton and Wanstead) (Lab) † Mills, Nigel (Amber Valley) (Con) † Doughty, Stephen (Cardiff South and Penarth) (Lab/ †Mowat,David(Warrington South) (Con) Co-op) † Murray, Sheryll (South East Cornwall) (Con) † Duddridge, James (Rochford and Southend East) † Nash, Pamela (Airdrie and Shotts) (Lab) (Con) † Newmark, Mr Brooks (Braintree) (Con) Evans, Chris (Islwyn) (Lab/Co-op) O’Donnell, Fiona (East Lothian) (Lab) † Gauke, Mr David (Exchequer Secretary to the † Offord, Dr Matthew (Hendon) (Con) Treasury) Pearce, Teresa (Erith and Thamesmead) (Lab) † Gilmore, Sheila (Edinburgh East) (Lab) † Pugh, John (Southport) (LD) † Gummer, Ben (Ipswich) (Con) Qureshi, Yasmin (Bolton South East) (Lab) Hands, Greg (Chelsea and Fulham) (Con) Shannon, Jim (Strangford) (DUP) † Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/ † Stephenson, Andrew (Pendle) (Con) Co-op) Stewart, Rory (Penrith and The Border) (Con) † Javid, Sajid (Economic Secretary to the Treasury) † Thornton, Mike (Eastleigh) (LD) † Jones, Mr Marcus (Nuneaton) (Con) † Uppal, Paul (Wolverhampton South West) (Con) † Kwarteng, Kwasi (Spelthorne) (Con) † Williams, Stephen (Bristol West) (LD) † Leslie, Chris (Nottingham East) (Lab/Co-op) McKinnell, Catherine (Newcastle upon Tyne North) Simon Patrick, Committee Clerk (Lab) † McDonald, Andy (Middlesbrough) (Lab) † attended the Committee 339 Public Bill CommitteeHOUSE OF COMMONS Finance Bill 340 to meet that new “substantially all” condition, only the Public Bill Committee financing expenses and financing income that relate to the treasury activity will be included in the election. It Thursday 6 June 2013 appears that hitherto, treasury companies may have been distorting some of their income and expenses with non-treasury income and expenses. (Morning) I would like the Minister to help the Committee with some questions. They are difficult questions with which [MR DAVID AMESS in the Chair] to grapple, but just because they are difficult, that does not mean that we should not try to clarify them so that Finance Bill matters are understandable. Can the Minister—and this is a very basic question—give examples of what group treasury companies are and what they do in the real (Except clauses 1, 3, 16, 183, 184 and 200 to 212, economy, so that we are all speaking the same language, schedules 3 and 41 and certain new clauses and new we know one when we spot it and we know what they schedules) are in layman’s terms? Are we talking about international finance houses; some sort of shadow banking hedge-fund 11.30 am institution; or the financing subsidiaries of larger corporate The Chair: I anticipate that the room will get warmer, groups, where genuine real-world output is financed so Members are free to take off whatever clothing they from intra-group lending? In the panoply of large multi- think reasonable. armed international and multinational organisations, a parent group or a subsidiary may sometimes have a treasury function and undertake various activities on Clause 43 behalf of the company that does the work. I am trying to paint in my mind’s eye a map of what exactly we are FINANCING COSTS AND INCOME: GROUP TREASURY talking about, so I would be grateful if the Minister COMPANIES could help to explain that landscape, I would certainly Question proposed, That the clause stand part of the be grateful. Bill. In such circumstances, there is sense in restricting the tax deductibility of financing costs and expenses, including Chris Leslie (Nottingham East) (Lab/Co-op): Good interest on loans, with a debt cap, especially if the morning, Mr Amess. It is not that warm in the Committee group’s UK debt is bigger than the debt it holds elsewhere. today; it might well get heated, but we can only hope for Otherwise—I think that the clause is aiming at this—there some excitement over the course of the day. Many would be a perverse incentive to locate corporate debt Members will have been excited when they saw that in the UK for reasons of tax efficiency. However, this clause 43 would be the first item to arise in Committee. carve-out or exception is made for treasury companies. If my hon. Friends could hold back their interventions Will the Minister explain the new distinction being for a short time while I get some of my points out, I will made for group treasury companies? be grateful. The clause seems to change the definition of treasury The clause changes the worldwide debt cap exemption companies so that only those that are wholly or mainly for group treasury companies and tackles issues that involved in certain activities can elect for exemption have allowed companies that do not have a treasury from the worldwide debt cap. That prompts me to ask function to make a group treasury company election. what sort of businesses and how many of them will be The debt cap rule, as it is known, imposed a limit on tax affected. I would be grateful if the Minister could help deductions for interests for UK members and branches to illuminate that matter by shedding a little light on of a worldwide group. The rules were introduced with this opaque area of tax law. effect from January 2010. Broadly, the rules restrict a group’s UK treasury deductions for finance costs to the worldwide group’s third-party finance expenses. The The Exchequer Secretary to the Treasury (Mr David rules are complex in their application and require tests Gauke): It is a great pleasure to welcome you back to to be met, which involve looking at the financing income the Chair, Mr Amess. and financing expenses of UK group members and Clause 43 makes changes to the debt cap rules to comparing that with the worldwide external borrowings close tax planning opportunities. The changes will revise of the group as a whole. how group treasury company election operates to ensure The Institute of Chartered Accountants in England that tax planning is minimised, and they will take effect and Wales says that the worldwide debt cap introduced for periods of the accounts of a worldwide group that back in 2009, when UK groups were exempted from tax began on or after 11 December 2012. on dividends received from their overseas subsidiaries, It may help hon. Members if I provide some background. has, in broad terms, capped the amount of interest The debt cap rules were introduced in 2010 to limit the deductible in the UK, if the UK debt is greater than tax deduction that a UK company can claim for interest the particular group’s external worldwide debt level. and other finance expenses at the level of the overall The intention was to discourage upstream loans and worldwide group. There are circumstances in which excessive debt in the UK. Group treasury companies certain categories of companies can be partly or wholly can elect to be exempt from the worldwide debt calculations, removed from the debt cap rules, one of which is use but in future, to be able to do so, all or substantially all, of group treasury company election. A group treasury of the activities must be treasury activities. If they fail company’s finance income is usually almost matched by 341 Public Bill Committee6 JUNE 2013 Finance Bill 342 its financing expenses, so that the company has little From time to time since 2010, amendments have been impact on the overall position of the whole group for made to the cap. In truth, the group treasury company debt cap purposes. election was not working as intended and the changes The original intention of group treasury company that we are making will ensure that only those financing election was to reduce the administrative burden on expenses in income generated by group treasury activity companies that have a treasury function in a group by will be excluded from the debt. allowing them to opt out of the debt cap rules. However, Where loopholes in the UK tax system are identified, elections have been made by companies that do not obviously we seek to address and close them. None the have a treasury function, enabling them to shelter finance less, there would be considerable risk if we were to expenses that, without election, might be disallowed for abandon the worldwide debt cap.