§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)My right honourable friend the Paymaster General has made the following Written Ministerial Statement.
The Government are taking action which will be effective from today to prevent tax avoidance by companies in three areas: claims to excessive double taxation relief; use by companies of capital redemption bonds to generate artificial losses; and exploitation of the loss buying rules.
Double Taxation Relief
A recent decision by the Special Commissioners on the detailed application of the double taxation rules has the effect of putting a significant amount of tax at risk. The Government are taking action from today to ensure that tax is not lost through avoidance schemes that would seek to exploit the decision. Today's announcement will only apply to those who take part in deliberate tax avoidance. This action will not affect those who conduct their affairs on normal commercial principles.
From today, tax avoidance schemes that are put in place deliberately to create foreign tax credits to reduce total tax liabilities will be blocked. The amount of credit for any foreign tax paid on or after today's date will be limited to the amount of UK tax on the profits (if any) arising from the transactions making up the avoidance scheme.
43WSCorporate Capital Redemption Bonds
A number of avoidance schemes have been disclosed to the Inland Revenue which aim to generate capital losses using corporate capital redemption bonds. From today, where one of these bonds is disposed of by a company, no capital loss can arise.
Loss Buying
Further disclosures under the new disclosure rules introduced in Finance Act 2004 mean that the Government will close a loophole which allows certain losses to be carried forward despite the obvious intention of Parliament that they should not be. From today, where there is a change in ownership of a company that would otherwise cause the loss buying rules to operate, any non-trading loss on debt allocated to the period ending before the change will not be carried forward to a post-change period.
Legislation will be included in the Finance Bill to stop these avoidance schemes. Further details about each of the proposals and draft clauses which cover corporate capital redemption bonds and the loss buying changes are available on the Inland Revenue website.