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Finance (No. 2) Bill

I hope that I can provide the reassurance sought by the hon. Member for Fareham (Mr. Hoban) and those whom he has consulted in recent weeks. I have re-read the Hansard of the debate in Committee, where we had an interesting and wide-ranging discussion about the role of the ECJ and European decision making in UK tax law and considered the almost philosophical issues around tax policy. However, the hon. Gentleman has raised some particular points, which I shall address in a particular way. As the hon. Gentleman has said, clause 27 and schedule 1 provide for a small extension to the group loss relief rules for companies. That extension allows UK groups to claim corporation tax relief for foreign losses in very limited circumstances. Existing group relief rules for UK losses, including the timing period, which business is keen to retain, are unaffected by the proposed legislation. We are introducing this small extension to group relief following last December’s judgment of the ECJ in the case of Marks and Spencer plc v. Halsey, which set the conditions under which group relief should be extended to foreign losses. Those conditions are very restrictive, which was the intention. Indeed, the way in which members of the European judiciary reflected legal opinions made it clear that the conditions are to be applied in extremely restricted circumstances. Amendments Nos. 15 and 122 go beyond the judgment and relax one of the conditions under which extended group relief is available. The condition is that to be eligible for relief in the UK, there must be no possibility of relieving a loss in a future period in another state. The amendments would change the date by reference to which companies determine whether that possibility exists. The reference date is currently immediately after the end of the loss period, but amendment No. 15 would change that to the date on which the group relief claim is made by a UK company. Amendment No. 122 would change the reference date to the earlier of two years after the end of the accounting period or the deadline for filing corporate tax returns of the foreign loss-making company, whichever is earlier. On amendment No. 15, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) has said, there is no logic in tying the test of possibility of relief to the rules that apply in respect of claims, because the concepts are entirely separate. The claims rules apply to the claimant company, while the possibility of relief rule applies to the losses of the surrendering company, and there is no logic in trying to create an entirely forced link between the two. We are talking about the definition of the loss period and the point at which the decision is made; we are not talking about the timing of the claim. The claimant company will still have at least two years to claim relief, which exactly mirrors the current relief rules for UK group relief. The difference is that at the time of the claim, the claimant company must look back to the date immediately after the loss period to see whether there is any possibility of relief at that time. As I have said, we are discussing the loss period, not the claim period.