Finance Bill

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Mr. Flight: I want to raise one other important point, because the clause deals with the taxation of LLPs. The LLP structure was put in place for the use of law firms, but I noticed that several leading London law firms have used a Delaware vehicle to achieve limited liability, so I made inquiries to find out why. One factor behind the substantial expansion of UK law firms into continental Europe—in essence, the acquisition of law firms in the EU by London companies—has been that under the partnership structure, when, for example, a company merges with a German law firm, the German lawyers joining the partnership may choose to pay UK tax, which is lower than prevailing rates in the EU. Indeed, that is one factor that has driven the aggregation of the mergers of law firms. For reasons that I do not fully understand, that does not work if the new LLP structure is used, which is why the Delaware vehicle is being used as an alternative.

It is quite important because this commercial development has been wholly in the interests of the UK, and UK law firms are acquiring businesses and considerable power in continental Europe. The LLP is intended to be useful and effective specifically for professional businesses, but on a rather important tax issue that underpins everything that is happening, it loses the structure that was previously available to partnerships.

The issue is not necessarily UK taxation, but tax treaty agreements between the UK and continental Europe. However, the Paymaster General and her advisers could usefully consider the matter, because unless we can achieve what is already in place, LLPs will not be much use for their primary objective.

Dawn Primarolo: We could usefully consider the hon. Gentleman's point and we shall—subsequently.

The hon. Member for Croydon, South (Mr. Ottaway) talked about unintended consequences for eurobonds. In general, LLPs will be treated as partnerships for tax purposes. The tax consequences concerning eurobonds will be the same for LLPs as for current partnerships. The LLP changes are not designed to change the rules for eurobonds. The hon. Gentleman might want to press for more detail on that point. I think that he suggested an amendment. If, after consideration, I find that that is not the case, he is right that I have a route to deal with it.

The hon. Gentleman also made a point about offshore partners. An offshore partner or member will not necessarily be exempt if the property is in the UK. The same consequences will follow for offshore members of an LLP as for offshore partners in a normal partnership. He talked about discrimination, which is not there.

The hon. Member for Torridge and West Devon described his points as esoteric. I am not sure that I would describe them as such, but I will do my best to cover the details. My hon. Friend the Financial Secretary has offered to write to the hon. Gentleman, so perhaps I should leave it to him. He is right that we have had time to consider his points, so I can give him some answers on the record. If he is not satisfied, he can say so at the end. If he is satisfied, my hon. Friend will not have to rush back to the office and pen a letter to him before he is allowed to go home this evening.

The first question related to the transitional rules for abolition on a cash basis. If, on a conversion, the LLP succeeds to the business previously carried on by an old partnership, the spreading rules for catching upcharge will continue to apply as if the conversion had not occurred.

On the second point, while an LLP is carrying on a trade or business with a view to profit, capital gains will be computed according to the members' beneficial interests in the partnership's assets. Partners in a conventional partnership are taxed on exactly the same basis.

On the question of extra-statutory concessions and a statement of practice to cover LLPs, they will be amended when the law is settled. In particular, the Inland Revenue guidance in the tax bulletin, which I mentioned at the beginning of the debate, referred to the statement of practice D12 and extra-statutory concession A43, which will need amending for the reasons that the hon. Gentleman advanced on the Floor of the House. When gains are deferred under rollover relief, the gains will be clawed back when the LLP ceases to trade with a view to profit; that measure was included in the LLP Act. Gains deferred under gifts relief or rollover relief will be clawed back only when the LLP ceases to trade with a view to profit. If it switches from one trade to another, there will be no clawback.

I think that that covers the points raised by the hon. Gentleman, but if it does not spare my hon. Friend the Financial Secretary from writing to him, perhaps he could say so now so that I can pass the baton to him and a letter can be dispatched this evening.

Mr. Burnett: It dealt admirably with my points, and I am grateful to the Paymaster General. However, I have an extra point, which is slightly tedious. A cash basis firm in transition may merge with a firm that is not in transition to form an LLP. Will the Financial Secretary or Paymaster General confirm, in due course, that there is no clawback in such a case?

I am especially pleased to note that under general law principles there should not be a problem for rollover relief in any event if a trade is changed. I am glad to hear that the gain will not be crystallised if the LLP changes its trade and there is a holdover gain.

Mr. Ottaway: I put two clear points to the Paymaster General, to which she gave two clear responses, from which I can only conclude that the Government intend to pursue the policy they have advanced. All I would say is that it will erode Britain's competitive position and UK plcs will suffer to the advantage of offshore property companies and in the eurobond market.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 17

Limited liability partnerships: investment LLPs and property investment LLPs

    '.—(1) Schedule (Limited liability partnerships: investment LLPs and property investment LLPs) to this Act has effect with respect to limited liability partnerships whose business consists wholly or mainly in the making of investments.

    (2) The provisions of that Schedule shall be deemed to have come into force on 6th April 2001.'—[Dawn Primarolo.]

Brought up, read the First and Second time, and added to the Bill.

Dawn Primarolo: On a point of order, Dr. Clark. What happens to new schedule 2?

The Chairman: We have discussed it with new clause 16 and will vote on it in its proper order.

New clause 18

Interest on unpaid tax, etc.: foot-and-mouth disease

    '.—(1) This section applies in any case where, in exercise of their powers of care and management, the Commissioners of Inland Revenue agree that, by reason of circumstances arising as a result of the outbreak of foot-and-mouth disease, the payment of tax by a person may be deferred.

    For this purpose ''tax'' includes any amount chargeable by way of tax, or as a result of the non-payment of tax, in respect of which interest would, apart from this section, be chargeable.

    (2) Where this section applies no interest on the amount deferred shall be chargeable in respect of the period—

    (a) beginning with 31st January 2001 or, if the Commissioners so direct in any case, any later date from which the agreement for deferred payment has effect, and

    (b) ending with the date on which the agreement for deferred payment ceases to have effect.

    (3) An agreement for deferred payment ceases to have effect at the end of the period of deferment specified in the agreement, subject as follows.

    An agreement for deferred payment shall be treated as not ceasing to have effect if, or to the extent that, the Commissioners agree (whether before or after the end of the period of deferment specified in the agreement) to extend that period by reason of circumstances arising as a result of the outbreak of foot-and-mouth disease.

    (4) For the purposes of subsection (3) as it applies to an agreement for payment by instalments, the period of deferment in relation to each instalment ends with the date on or before which that instalment is to be paid.

    But if any instalment is not paid by the agreed date and the Commissioners do not agree in accordance with that subsection to extend the period of deferment, the whole agreement shall be treated as ceasing to have effect on that date.

    (5) This section shall cease to have effect on a date specified by the Treasury by order made by statutory instrument.

    This is without prejudice to its continued operation in relation to an agreement for deferred payment made by the Commissioners before the specified date.

    (6) This section applies—

    (a) whether the agreement for deferred payment was made before or after the passing of this Act, and

    (b) whether the agreement for deferred payment was made before or after the amount to which it relates became due and payable.

    (7) If in any case the Commissioners are satisfied that, although no agreement for deferred payment such as is mentioned in subsection (1) was made, such an agreement could have been made, this section shall apply as if such an agreement had been made.

    The terms of the notional agreement shall be assumed to be such as the Commissioners are satisfied would have been agreed in the circumstances.'.—[Dawn Primarolo.]

Brought up, read the First and Second time, and added to the Bill.

New clause 12

Environmental protection rebates scheme

    (1) The Treasury may by order made by statutory instrument introduce a scheme of rebates to those persons charged with the aggregates levy and who have employed environmental protection measures in the process of commercial exploitation of aggregate;

    (2) Environmental protection measures in this part are those measures which the Secretary of State shall by order determine to be in the interests of protecting or enhancing the environment;

    (3) No rebate under this scheme shall be made unless the environmental protection measures:

    (a) relate directly to the process of commercial exploitation of aggregate; and

    (b) shall have been verified and certified by an external body prescribed for that purpose by the Secretary of State;

    (4) A statutory instrument containing an order under this section shall not be made without prior consultation with those persons appearing to the Secretary of State to be representative of those having an interest in:

    (i) the commercial exploitation of aggregate;

    (ii) the protection of the natural environment;

    (iii) the local communities affected.

    (5) A statutory instrument containing an order under this section shall be laid before Parliament and approved by resolution of the House of Commons.'.—[Mr. Malcolm Bruce.]

    Brought up, and read the First time.

6.45 pm

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