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I ask James Messis to provide background on that.

I think that the dispute mechanism is robust and that it provides sufficient flexibility. It is also important to recognise the impact on ratepayers. Avoidance measures are fundamentally unfair and disadvantage people who engage in legitimate practice.

I ask James Messis to address your specific points about the dispute mechanism and what recourse there is in the event that an occupier disagrees with a local authority.

Good afternoon. The draft instrument under consideration is quite technical, but simply put, its intention is to assist councils from 1 April 2023 in tackling known non-domestic rates avoidance arrangements.

The measures that are set out in the regulations are unique in the UK. Tax avoidance in non-domestic rates takes place when a ratepayer seeks to reduce or avoid the liability on their property through activity that, although permissible within the existing legal framework, is not in keeping with the spirit of non-domestic rates law.

In 2017, the independent Barclay review of non-domestic rates recommended that a general anti-avoidance rule be created to make it harder for loopholes to be exploited. Subsequently, the Non-Domestic Rates (Scotland) Act 2020 provided powers that enable Scottish ministers to make regulations

“with a view to preventing or minimising advantages arising from non-domestic rates avoidance arrangements that are artificial”.

The relevant terms are defined in the 2020 act.

We committed to utilising those powers, including in the programme for government 2021-22 and the Bute house agreement. The draft regulations that are before the committee deliver on those commitments. They aim to strike the right balance between empowering councils to tackle rates avoidance and allowing property owners and occupiers to engage in business practices that are carried out for a reason other than simply tax avoidance.

The first target of the regulations is the artificial use of insolvency, particular leasing arrangements and shell companies. Within prescribed circumstances, councils will be able to make the owners, rather than the occupiers, of non-domestic properties liable for the payment of rates. In those circumstances, non-domestic rates relief awarded to the property would cease.

The regulations have a number of built-in safeguards to protect legitimate operators. First, the triggers for the transfer of rates liability are not actionable unless it is a non-domestic rates advantage, such as an outstanding non-domestic rates liability. Further, the circumstances in which a council may transfer the rates liability from the occupier to the owner of the property are carefully defined and include tenancies that are not on a commercial basis, insolvency in conjunction with other artificial indicators, and specific characteristics and behaviours of the occupier.

Councils must notify the property owner of any intention to transfer the rates liability to them and must provide an opportunity for the owner to make representations before a final determination is made. Only if there has been a similar offence within the past five years can there be a retroactive transfer of liability from the start of a given artificial lease agreement.

The second target of the draft regulations is rates avoidance through a reduction in rateable value by making deliberate physical changes to the state of a property solely for the purpose of reducing the rates liability. That can include intentional property destruction. The conditions for the use of the relevant power are set out in the regulations and are necessary to support the devolution to councils of the responsibility for empty property relief.

As is the case with the other provisions in the regulations, it is not intended to target legitimate enterprise. In all instances in which the council questions the appropriateness of any arrangement, the owner will have the opportunity to demonstrate its commercial rationale.

The draft regulations were subject to consultation with industry experts and practitioners, including assessors and local authorities, through the Institute of Revenues Rating and Revaluation. I thank everyone who engaged with Government officials on that.

Tax avoidance reduces public revenues and is unfair to the majority of ratepayers, who do not engage in such practices. The presence of avoidance behaviours can also undermine public confidence in the non-domestic rates system and lead to reduced rates of compliance. It is not just appropriate but necessary that we bring forward regulations to tackle tax avoidance where we can and ensure greater fairness and transparency in the non-domestic rates system. As such, the regulations support the principles of the Scottish Government’s “Framework for Tax” and align with the strategic objectives that the framework contains.

I hope that members agree with me and will support the draft instrument.

Sufficient flexibility is built into the regulations so that the local authority, as the effective tax authority, can engage with owners, and there is an opportunity for owners to engage following a local authority’s giving of a notice. I ask James Messis to expand on that slightly.

Local authorities are responsible for the administration. More generally—it is not specific to this matter—resource has been provided to local government in recent financial settlements for the reforms that have been implemented due to the Barclay review.

James, do you have anything to add?

As the convener and the committee will be aware, we are in the process of carrying out a review of the ADS and will have more to say about it relatively soon. We are carefully considering the consultation responses, and I will have more to say on that specific issue in due course. I am not currently in a position to go into any further detail on what the outcome of the review will be, but that issue has been considered as part of the review.

We gave that careful consideration as part of a broad review of the ADS that we did last year. It is a complex area, and it is important to get the balance right, but in the near future I intend to bring forward regulations for consultation. Those will respond to a number of the areas that have been raised as part of the review process. It will be a matter for the committee to consider, and I am happy to give further evidence when we are in the position to publish our intentions. We have not finalised our decisions, so I do not want to speculate about what our response will be to the review. However, I assure the committee that we will bring forward those measures quite soon.

What you have referred to would be specific to the ADS. For home buyers, the threshold is £145,000 and £175,000 for first-time buyers. It is important to take into account the distinction between property prices in Scotland and England, too: as of last October, the average property price in Scotland was, I think, around £195,000, whereas it is £316,000 in England.

I would also make the point that our devolved system of LBTT has been in place for some time. Following the pandemic, we have seen significant resilience and recovery in the housing market. I appreciate that, as we move into this year, the combination of the economic headwinds that we face in the wake of rising interest rates and the impact of the mini-budget, which has led to the withdrawal of mortgage products, will have an impact.

Looking at the revenue that we are raising, LBTT is a strongly performing tax and it is forecast to provide a net gain, once the BGA is factored in. The decisions that we take are balanced. We make them to support first-time buyers and to raise revenue, and that is what they are doing.

We are consistent. The policy supports our broader policy on housing in “Housing to 2040”. That is Government policy that is already set out. All our decisions on tax are taken with regard to the wider considerations around Government policy. The approach is consistent and in line with our broader strategic objectives.

With regard to support for the PRS, I ask Ewan Cameron-Nielsen to come in on the exemption for six or more purchases.