Dealmakers fret over tax clearances

Senior corporate figures are concerned that a new procedure could mean
companies will have to confirm clearance to please investors before flotations,
M&A deals and other capital raisings.

The fears have been raised at high-level meetings of business figures and
HMRC chiefs, with the
group ­ the Business Tax Forum ­ set to lock horns on the issue again on Monday
of next week.

Businesses are fretting that major corporate transactions could require the
blessing of HMRC to go ahead under the taxman’s plans to provide clearances on
complex tax arrangements.

‘When dealing in funds with the public, the prospectus would need to contain
HMRC clearance on the tax implications for the fund to be marketable. Clearances
may become market practice. If one business applies their competitors will be
obliged to follow,’ business representatives said in minutes from the September
2007 meeting, which were released by HMRC last week.

The possibility of such a scenario has raised concerns among tax lawyers and
advisers who are worried that they may come under commercial pressure to obtain
clearances for indemnity purposes.

HMRC, meanwhile, is equally concerned it will be deluged with clearance
applications, even for straightforward transactions, as advisers seek to cover
themselves.

‘This is one of the worries with a clearance system. When you have a complex
tax system, there are grey areas, so where clearance is available a business is
going to go for it,’ said Michael Templeman of Schroders, who sits on the
Business Tax Forum.

Obtaining clearance from government agencies for corporate transactions has
been an ongoing issue for other state bodies.

The Pensions Regulator has become increasingly powerful over the past two
years after it was given retrospective powers to force companies to pump cash
into the pension schemes of an acquired business if it felt that pension funds
were underfunded.

The regulator offered business a voluntary clearance process for pension
funding arrangements, but the threat of facing a contribution notice later on
has meant that many companies have opted to apply for clearance if though they
don’t have to.

Dealmakers have accused the regulator of delaying deals through the clearance
process and holding too much influence over transactions. This has raised the
possibility of similar disputes erupting over HMRC clearances.

HMRC said it would update guidance on clearances continuously.