Draft Finance Bill 2016 Clause 79, 80 Tackling the hidden economy - CIOT comments
It will align the counteraction process for the TIS legislation more closely with the process for compliance checks under self-assessment. The measure will also introduce a new Targeted Anti-Avoidance Rule (TAAR), which will apply to distributions in respect of share capital in a winding-up. This TAAR will treat the distribution from a winding‚Äêup as if it were a distribution chargeable to income tax (rather than as a capital receipt), where certain conditions are met. The changes will have effect for transactions occurring on or after 6 April 2016.
In our response, we say that we can understand and support the Government tightening up the law in this area where active abuse is taking place. However, our overall concern is that the draft legislation may go wider than intended, leading to increased uncertainty for business and difficulty in advising clients as to how HMRC or the courts would treat a transaction.
Since clause 16 (3) makes it clear that the transactions in securities legislation will include ‚ a distribution in respect for securities in a winding up‚ we wonder whether it is necessary to introduce a TAAR as well.
It would be helpful if HMRC could clarify the extent to which a TIS clearance for a liquidation distribution will, going forward, provide comfort that the new TAAR does not apply. Our suggestion is that the TAAR is added into the TIS clearance procedure.
We are also concerned that the TAAR will have some unwanted consequences, particularly because Condition B referred to in draft clause 18, which will be contained in new ITTOIA 2005 section 396B, is so wide that we can foresee it may have an impact on commercial decisions. Perhaps a solution is that there should be a ‚ control‚ test, or a ‚ de minimis‚ type test, rather than a close company test here to try to target the test better. Much will depend upon how HMRC intend to interpret the condition, the main purpose test in Condition C and their interaction (section 396B(5)), so some clarification from HMRC will be essential.
The CIOT‚ s full submission can be found here.
Draft clause 16(10) provides that where HMRC have issued a clearance notice under section 701 ITA 2007 before 6 April 2016, but the transaction occurs on or after 6 April 2016, the clearance will not be valid where the transaction ought to be counteracted only because of the amendments made by this clause.
Where HMRC‚ s Clearance and Counteraction Team consider that the proposed changes might apply to a transaction if it occurs on or after 6 April 2016, CIOT asked for confirmation that clearances will include a statement from HMRC that the notification given may become void with effect from 6 April if the proposed changes to the TIS provisions come into effect as drafted. We also asked if the Clearance team would indicate where it is not considered that the clause should apply, as well as indicating where it is considered it could apply.
HMRC have responded, in a letter dated 29 January 2016, as follows:
‚ Thank you for your comments regarding the proposed changes to the Transactions in Securities legislation. We fully appreciate the concerns that you raise and have been discussing potential solutions.
‚ Firstly, I can confirm that the Clearance and Counteraction team are already using the following wording where they believe that a clearance given now might not be valid should the proposed changes be brought in on 6 April 2016:
‚ The Board take the view that the notification given in this letter may become void with effect from 6 April if the proposed changes to the transactions in securities provisions which were published on 9 December 2015 come into effect as drafted.
‚ I can also confirm that the team have also been providing a view on the matter where they have been specifically asked. Following your feedback, and representations received from various other parties, the Clearance and Counteraction have agreed that it would be helpful to go further than this. Starting now, all clearances will contain either the wording quoted above, or the following wording (or variants thereof):
‚ The Board consider that this clearance will not be affected by the proposed changes to the transactions in securities provisions which were published on 9 December 2015.
‚ Assuming that the proposed legislation is passed by Parliament, there will be a slightly different issue from 6 April 2016 until Royal Assent is received. I can also confirm that during this period both clearance and refusal letters will contain similar wording to the above in order to provide the applicant with as much certainty as is possible. The precise wording is currently the subject of discussion with HMRC Solicitors.
‚ I can confirm that I am happy for you to publish this letter, or to publicise the content in any way you deem necessary, as I agree it will be useful to circulate the information as widely as possible‚ .
The full text of CIOT‚ s letter can be found here.
HMRC‚ s response can be found here.