Finance Bill 2017-19 Committee - 3rd sitting

8 Nov 2018

A liveblog on the third public bill committee sitting of Finance Bill 2017-19 . Debate started from clause 20, on corporate interest deductiblity, and also covered tax reliefs for museum exhibitions and grassroots sport, the patent box and the substantial shareholding exemption. Two government amendments were passed.

Documents on the Bill can be read here. These include explanatory notes on the clauses and the text of amendments and new clauses tabled for debate.

Proceedings can be listened to here.

Clauses 5, 15 and 25 were dealt with in Committee of the Whole House, a report of which can be read here. That report also includes a background note on this Finance Bill, its history and its contents.

(NB. Notes reflect debate as heard by author and transcription errors cannot be ruled out)

FINANCE BILL 2017-19 PART 1 - DIRECT TAXES (continued)

20 & sch5 Corporate interest restriction (Restricts extent to which interest payments can be deducted in calculating profits for CT purposes. Comes from OECD BEPS project (action 4). Schedule is 158 pages long!) - PASSED (and amendments 27-28 and 3-6 (WITHDRAWN OR DEFEATED), and debate on new clause 1)

Labour's amendment 27 would remove the special provisions relating to the corporate interest restriction for public infrastructure companies

Labour's amendment 28 would require HMRC to report on the operation of the special provisions in Schedule 5 relating to public infrastructure in relation to sectors and, within sectors, in relation to privatised companies as a group. Sectors covered include water, gas, electricity and telecoms.

Amendments 3-6 are proposed by Labour backbencher Stella Creasy. Amendment 3 would exclude PFI companies from the provisions of Chapter 8 of new Part 10 of TIOPA 2010. Amendment 4 provides that the qualifying old loan relationship only applies to a qualifying infrastructure company that is a PFI company. Amendment 5 requires a review to be undertaken of the impact of the provisions of Chapter 8 of new Part 10 of TIOPA 2010 in relation to PFI companies and if the provisions did not apply to PFI companies. Amendment 6 defines a PFI company. New clause 1, also tabled by Creasy, would require a review to be undertaken of the corporation tax reliefs available to PFI companies.

Stella Creasy (Lab) said she was not against private finance but she felt companies were making excessive profits. Many of these companies are reporting little or no tax in the UK, she said. Indeed many of them are not registered in the UK. Most of them are heavily indebted to their shareholders, she said. She said new clause 1 was designed to help us work out what the difference would be what we get in and what we expect to get in. She pressed the minister to commit to gathering data about how much these companies had paid in tax, even if he would not accept her amendments and new clause.

Shadow Chief Secretary to the Treasury Peter Dowd (Lab) praised Creasy's PFI amendments.

Kirsty Blackman (SNP) said her party would support Labour on new clause 1, but she expressed concern about possible impact on Scotland of changes to PFI proposed by the amendments.

Kelvin Hopkins (Lab) said PFI had been an 'outrageous rip off'.

The Financial Secretary to the Treasury, Mel Stride, introduced the Government's proposals on changing treatment of interest deductibility and defended the retrospective introduction of the measure. He acknowledged the changes were detailed and technical. He said proposals for a review of these rules within three months was premature. The Government would keep the rules under review. He noted that PFI companies were highly leveraged. He said there were grandfathering proposals to ensure such companies were not unreasonably disadvantaged. The Government would continue to meet with key stakeholders impacted by these rules.

The minister said PFI companies did not obtain any special treatment under the rules. He said it would be widely accepted that many of the issues raised by Creasy occurred under a previous Labour government. What is in the scoipe of the Bill is chapter 8 and whether PFI infrastructure projects should be treated differently. Large amounts of interest are often part of the natural way in which they are constructed. To what degree does one apply this kind of approach to a business of that nature, he asked. Does chapter 8 apply to an overseas company? No, but it applies to UK companies who hold the contract.

Amendment 28 from Labour was unnecessary, he said, explaining the Government had already undertaken significant work in this area and would continue to engage with stakeholders.

Peter Dowd argued there had been a paradigm shift in the public view on PFI. Citing the length of schedule 5 he said this measure was one of the most complex that had been put before Parliament. But there was a wider issue around how much projects in sectors like water and electricity were costing taxpayers. He said UK involvement in OECD BEPS was welcome if it meant the end of the denuding of tax loss to the Exchequer. He said Labour wanted to delve down into this issue, getting HMRC to report on the implications of the proposals.

Stella Creasy called the minister's argument bizarre. The Government must have the relevant information to have put the legislation together (the minister having said they had looked at this) but were not willing to put it in the public domain, she said. Creasy said the public sector comparator information published around PFI contracts specifically considered tax payments in the context of whether the contracts provided value for money. She said the minister had not addressed new clause 1 and 'the levels of tax that these companies signed up to pay'. Giving these companies this tax relief was 'giving them a bonanza' she claimed.

Shadow Treasury Minister Anneliese Dodds (Lab) said that the BEPS recommendation 4 offered a range of possibilities with a cap of between 10 and 30%. The UK government had decided to go for 30%. She hadn't yet heard why that figure had been chosen. Secondly in relation to amendment 28 Labour's request for a review was specifically around the rationale for special provisions for public infrastructure providing companies. There were genuine questions around risks to continuity from these companies being based overseas, she added.

The minister said he accepted to some degree the argument that PFI companies should have taken into account that tax treatments can change. However while some PFI contracts were highly profitable others were far more marginal and might fail. He said there was plenty of anti-avoidance legislation to tackle abuse such as 'brass plating'. The Government had to consider competitiveness - Germany and Spain, among others, had also gone for 30%.

Clause 20 was passed without a division. The committee divided on amendment 5 to schedule 5 and it was defeated 10-7. The committee divided on amendment 28 and it was defeated 10-7. Other amendments were not pressed to a vote. Schedule 5 was passed without a division. (NB. New clauses are voted on at the end of the committee stage.)

21 & sch6 Museum and gallery exhibitions (new relief) - PASSED (and amendment 29 - WITHDRAWN)

Labour's amendment 29 would make statutory provision for the 2020 review of the operation of the new museums and galleries tax relief, including consideration of its effects and its future beyond 2022.

The Financial Secretary explained the purpose of the relief. The relief will be capped at the equivalent of £500,000 of qualifying expenditure per exhibition. The Government has amended the measure to include exhibitions with an element of live performance where this is not central to the exhibition.

Peter Dowd (Lab) said he supported these measures and hoped that more young people in particular would attend museums and galleries as a result. Labour wanted a review to check the relief was doing the job being asked of it.

Kelvin Hopkins (Lab) said in an ideal world we would fund museums and galleries directly rather than supporting via a 'complex jungle' of tax reliefs.

The minister said the Government would keep all these issues closely under review but he did not want a 'review-fest'. He agreed anti-avoidance rules were important to avoid abuse and said these would be in place. Consultation had not identified additional opportunities for abuse.

Clause 21 was approved without a vote. Amendment 29 was not moved. Schedule 6 was approved without a vote.

22 Grassroots sport (CT deduction for companies contributing to grassroots sport) - PASSED (and amendment 30 - WITHDRAWN)

Labour's amendment 30 would make statutory provision for a review of the new relief for grassroots sport, including identification of benefits to particular sports where possible.

Anneliese Dodds (Lab) opened the discussion, expressing concern that this measure was being introduced because of the lack of other funding for grassroots sport.

The Financial Secretary set out the aims of the clause and safeguards to ensure payments are made for intended purposes. He stressed that the relief had been designed to be as simple as possible to operate.

The amendment was withdrawn, Clause 22 was agreed without a vote.

23 Profits from the exploitation of patents: cost-sharing arrangements - PASSED (and amendment 31 - WITHDRAWN)

Labour's amendment 31 would make statutory provision for a review of the effects of the changes relating to cost-sharing arrangements on profits from the exploitation of patents or similar intellectual property.

Anneliese Dodds (Lab) introduced Labour's amendment, and said it was positive to see attempts to tighten the patent box regime, bringing us into line with international best practice. As we try to enhance R&D efforts, it is also important that we live up to our international obligations, she said.

The Financial Secretary said clause 23 would ensure companies were not disadvantaged compared to those undertaking R&D outside a cost-sharing arrangement, in relation to the patent box. Labour's amendment would impose a requirement for a review, but the Government has carefully considered the regime and will continue to monitor the patent box in general and this proposal in particular.

The amendment was withdrawn and the clause was passed without a vote.

24 Hybrid and other mismatches- PASSED

The clause was passed without debate and without a vote

[25 & sch7 Trading profits taxable at the Northern Ireland rate were discussed and clause 25 agreed in Committee of the Whole House] - PASSED

Schedule 7 was passed without debate at this stage and without a vote

Chargeable gains

26 Elections in relation to assets appropriated to trading stock (anti-avoidance measure) - PASSED

The clause was passed without a debate or vote

27 Substantial shareholding exemption - PASSED28 Substantial shareholding exemption: institutional investors - PASSED (and government amendments 1 and 2 - BOTH PASSED)

The Financial Secretary introduced the proposal and explained that the SSE was introduced to eliminate double taxation of profits in certain situations around disposals of shares. Clause 27 would simplify this area by removing some conditions which impose substantial administrative burdens. He said the government amendments would ensure that the definition of what constitutes a substantial shareholding in companies owned by institutional investors applies for the whole of the SSE rules as intended. Clause 28 makes changes to introduce a new and simpler SSE for companies owned by some tax-exempt institutional investors. The changes introduced by these clauses would make the UK tax regime more competitive internationally, he argued.

Anneliese Dodds (Lab) asked whether what checks would be placed on the use of the new powers granted to the Treasury under clause 27. On clause 28 she asked how the Governemnt was trying to counter abuse.

Clause 27 was agreed without a vote. Government amendments 1 and 2 were moved and passed without a vote. Clause 28 as amended was agreed without a vote.

The committee adjourned at 1pm to return at 2pm for the fourth sitting.

George Crozier CIOT Head of External Relations