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Stamp duty concerns
Stamp duty concerns
The Institute of Indirect Taxation has commented on some of the stamp duty provisions contained in the Finance Bill 2002. As a general comment, the Institute considers that the effect of the Bill will be to make stamp duty a transaction based tax, with defined persons having primary and secondary liability for claw back charges. As a result, it believes that section 117, Stamp Duty Act 1891 should be abolished, since otherwise those acquiring companies which were affected by claw-back charges, might not be able to obtain indemnity against such liabilities.
Highlights of the Institute's more specific comments follow.
Disadvantaged areas
The Institute notes that in the Budget, the £150,000 limit on the exemption for transfers of non-residential property in disadvantaged areas is to abolished once state aid approval was obtained. The Institute doubts that the European Community will be persuaded that the proposal is compatible with the relevant guidelines on state aid. It is important that the Government indicate when it believed approval might be granted, since 'affected parties are likely to delay carrying out transactions in the expectation that such approval will be obtained within a realistic timescale'.
Group relief
It is clear from the terms in clause 109 and Schedule 34 that the charge to duty which arises when a transferee company leaves a group is intended to be a transaction based charge. However, clause 109(2)(a) says that when the charge arises the group relief is 'withdrawn'. The Institute asks if this means that the instrument in respect of which the relief was originally obtained becomes an incorrectly stamped instrument and, if so, what was the status of the document. If the document has been registered at the Land Registry, does the chief land registrar commit an offence under section 17, Stamp Act 1891 if he does not cancel registration once the relief is withdrawn.
The Institute says that an exemption, similar to that in section 179(2), Taxation of Chargeable Gains Act 1992, should exist where the transferee company leaves the group together with the transferor company if they remain a stamp duty 'sub-group'.
With regard to the introduction of a transaction based charge on withdrawal of group relief, the Institute questions why the 'equity holder' tests in Schedule 18 to the Taxes Act 1988 be retained. They could render the provisions for withdrawal of group relief 'inconsistent or haphazard in their application'.
The wide ambit of 'group company' for the purpose of paragraph 7(2) of Schedule 34 of the Bill was unreasonable, since any such company will have a secondary liability for the unpaid claw-back charge.
The proposal for the imposition of secondary liability for a claw-back charge on a controlling director concerns the Institute, as it is an 'unacceptable lifting of the corporate veil which would expose officers of affected companies to personal liability to the companies' transaction based taxes'. The term 'controlling director' is widely defined and, in reality, may not have actual control of the transferee company.
Late stamping
The extended penalty régime in clause 112(3) applies to an instrument relating to a transaction 'which to any extent involves land in the United Kingdom'. This is 'too wide', and could raise problems if, for instance, the instrument related predominantly to other property, such as land outside the United Kingdom.
Goodwill
While welcoming the new exemption for instruments relating to goodwill in clause 114 and Schedule 36, the Institute considers that it would be useful if the new definition of goodwill for corporation tax purposes in paragraph 4 of Schedule 29 applied for the purpose of this exemption also.
The Institute of Indirect Taxation's representations upon the stamp duty provisions in the Finance Bill 2002, 16 May 2002.
