Ruth Kelly: It may help the Committee if I explain what the clause is intended to achieve. The clause is an anti-avoidance rule that deals with the recognition of forward premiums and discounts, which are amounts equivalent to payments and receipts that accounting convention requires be recognised in some circumstances. At the moment, avoidance schemes are set up that attempt to establish a mismatch between the amount of such premiums or discounts shown in accounts on one hand and the amount recognised for tax purposes on the other. That strikes me as a clear case of deliberate tax avoidance.
The amended rule aligns the recognition for tax of a forward premium or discount, as recognised under United Kingdom GAAP. It is a sensible measure that does not go against the tax tradition in this country, as the hon. Member for Arundel and South Downs implies that it will. Anti-avoidance rules always apply to existing contracts; it is not retrospective but prospective, and applies from the date from which the draft clause is published. In 1996, the Conservative party introduced just such an anti-avoidance measure when it was in government. I hesitate to look at the right hon. Member for Fylde because he may have been the Minister who sat where I am sitting now and proposed such a provision. We are merely following precedent. I rest my case.
Mr. Flight: The Chartered Institute of Taxation has commented that during the consultation process the changes proposed did not solve the problem of divergence between amounts recognised for tax and those recognised in the company's profit and loss account. The institute suggested that rewriting the operative provisions would solve the problem satisfactorily. Why did the Government not decide to rewrite the provisions entirely?
Ruth Kelly: We have consulted extensively on the clauses that we have been discussing, which have not on the whole been criticised but generally welcomed by those in the industry who deal with complex financial
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instruments, derivatives and loan relationships. They mark an advance on the previous legislation. The structural reforms make avoidance far less likely in future, in addition to the specific anti-avoidance measures.
Of course, such measures introduce an additional element of complexity; that is to be expected, but a balance must be drawn between protecting the interests of the Exchequer and the ease with which the measures can be carried out.
The hon. Gentleman suggests that we should have rewritten the rules. In fact, we have done so, and if he reads schedule 26 he will see a case in point.
Question put and agreed to.
Clause 69 ordered to stand part of the Bill.
Clauses 70 to 78 ordered to stand part of the Bill.
Exchange gains and losses from loan relationships etc
Amendments made: No. 157, in page 264, line 34, after 'business' insert
'and falls within subsection (4) below'.
No. 158, in page 265, line 1, after '(3)(a)' insert 'or (c)'.
No. 159, in page 270, line 5, leave out 'or Schedule A business' and insert
', a Schedule A business or an overseas property business (within the meaning of section 70A of the Taxes Act 1988)'.
No. 160, in page 270, line 7, leave out 'or Schedule A business' and insert
', Schedule A business or overseas property business'.
No. 161, in page 271, line 27, leave out from 'any' to end of line 31 and insert 'exchange gains or losses.''.'.
No. 162, in page 272, line 43, after 'would' insert
', or would apart from section 84A(2) to (10) of this Act,'.
No. 163, in page 273, line 41, at end insert
'Life assurance business
13A (1) Paragraph 1 of Schedule 11 is amended as follows
(2) Before sub-paragraph (2) (effect on debits and credits of applying I minus E basis to profits and gains from loan relationships of insurance companies referable to life assurance business) insert
''(1B) In applying the I minus E basis for any accounting period in respect of any life assurance business carried on by an insurance company, no exchange gains or losses shall be taken to arise for the purposes of section 100 of this Act except to the extent that the money debt for the purposes of that section
(a) arises as a result of an amount of income or expenses which falls to be taken into account in applying the I minus E basis not being paid when it is due and payable; or
(b) is one that is treated as a money debt for the purposes of that section by virtue of subsection (11)(a) of that section in accordance with subsection (12) of that section by reference to a Schedule A business or an overseas property business.
This sub-paragraph has effect notwithstanding sub-paragraph (1) above.''.'.
No. 164, in page 273, line 43, leave out sub-paragraph (1).
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No. 165, in page 274, line 1, after '3A' insert 'of Schedule 11'.[Ruth Kelly.]
Schedule 23, as amended, agreed to.
Clause 79 ordered to stand part of the Bill.
Schedule 24 agreed to.
Clauses 80 to 81 ordered to stand part of the Bill.
Amendments made: No. 127, in page 286, line 7, leave out sub-paragraph (4).
No. 128, in page 289, line 14, at end insert
'and the shares are not, within the meaning of Chapter 1 of Part 12 of the Taxes Act 1988, assets of an insurance company's long-term insurance fund (see section 431(2) of that Act)'.
No. 129, in page 292, leave out lines 1 to 11 and insert
(b) profits, gains or losses arise to the company from the loan relationship or a related transaction in that accounting period, and
(c) the credits or debits brought into account for the purposes of this Chapter for that accounting period do not include credits or debits which represent the whole of those profits, gains or losses, credits or debits in respect of so much of those profits, gains or losses as are not represented by credits or debits brought into account for the cessation period shall continue to be brought into account under this Chapter over one or more subsequent accounting periods (''post-cessation periods'') as in the case of a loan relationship to which the company is a party in those periods and subsections (7) and (8) below shall apply.
(7) In any case falling within subsection (6) above, any question
(a) whether, in a post-cessation period, the company is to any extent a party to the loan relationship
(i) for the purposes of a trade carried on by it, or
(ii) for any other particular purpose or purposes, or
(b) whether, in a post-cessation period, the loan relationship is to any extent referable to a particular business, or a particular class, category or description of business, carried on by the company, shall be determined by reference to the circumstances immediately before the company ceased to be a party to the loan relationship instead of the circumstances in the post-cessation period.
(8) In any case falling within subsection (6) above, any question
(a) whether the loan relationship has to any extent a particular purpose in a post-cessation period, or
(b) whether there is a connection between the company and any other person for a post-cessation period, shall be determined by reference to the circumstances in the cessation period instead of the circumstances in the post-cessation period.''.'.
No. 130, in page 294, line 9, at end insert
'and the debt is not one that is owed to, or to persons acting for, a limited partnership which is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000'.
No. 131, in page 298, line 3, leave out '2001' and insert '2002'.
No. 132, in page 299, line 41, leave out 'Article 21' and insert 'Part 3'.
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No. 133, in page 300, line 38, leave out '(9)' and insert '(7)'.
No. 134, in page 300, line 40, after 'if' insert '(a)'.
No. 135, in page 300, line 43, leave out
'(within the meaning of section 87 of this Act)'.
No. 136, in page 300, line 45, at end insert
No. 137, in page 301, line 8, leave out from 'the' to end of line 10 and insert
'accounting period mentioned in sub-paragraph (2)(b) above.'.
No. 138, page 301, line 19, leave out from 'connection' to 'between' in line 20.
No. 139, in page 301, line 37, leave out 'sub-paragraph (6) above' and insert 'this paragraph'.
No. 140, in page 301, line 41, at end insert 'or'.
No. 141, in page 301, line 43, leave out from 'person' to end of line 46.
No. 142, in page 301, line 49, leave out 'paragraphs (a) to (c)' and insert 'paragraph (a) or (b)'.
No. 143, in page 302, line 1, leave out from 'above' to end of line 10 and insert
' ''control'' has the meaning given for the purposes of section 87 by section 87A of this Act.''.'.
No. 144, in page 304, line 2, at end insert
'but nothing in sub-paragraph (1) or paragraph (b) above shall prevent any credit in respect of interest from being brought into account for the purposes of this Chapter by the person described in that paragraph.'.
No. 145, in page 304, line 9, at end insert
No. 146, in page 304, line 18, at end insert
'(3A) For sub-paragraph (8) (which defines what it is for the benefit of a security to be available to a company) substitute
''(8) Any reference in this paragraph to a person who stands in the position of a creditor as respects a relevant discounted security includes a reference to a person who indirectly stands in that position by reference to a series of relevant discounted securities
(8A) Where this paragraph applies by virtue of sub-paragraph (8) above, the reference to the corresponding creditor relationship in sub-paragraph (1)(d) above is a reference to the creditor
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relationship of the company which indirectly stands in the position of a creditor as respects the relevant discounted security.''.'.
No. 147, in page 304, line 28, leave out 'and'.
No. 148, in page 304, line 30, at end insert
No. 149, in page 304, line 36, at end insert
'(3A) At the end of paragraph (b) of that sub-paragraph add ''; and
(c) the debt is not one that is owed to, or to persons acting for, a limited partnership which is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000.''.'.
No. 150, in page 304, line 43, leave out from beginning to second 'and' in line 44.
No. 151, in page 309, line 12, after 'if' insert '(a)'.
No. 152, in page 309, line 14, at end insert
No. 153, in page 313, line 46, at end insert
'Life assurance business
39A (1) In Schedule 11 (loan relationships: special provisions for insurers) Part 1 (insurance companies) is amended as follows
(2) In paragraph 1 (I minus E basis) after sub-paragraph (1) (which provides that nothing in the Chapter prevents profits and gains from loan relationships of insurance companies referable to life assurance business from being included in profits and gains chargeable in accordance with the I minus E basis) insert
(a) the I minus E basis is applied for any accounting period in respect of any life assurance business carried on by an insurance company, and
(b) in that accounting period the insurance company is a party to a loan relationship which is to any extent referable to that business, then, in applying the I minus E basis to that business, sections 92(1)(f), 93(1)(a) and (b) and 96(1)(b) of this Act shall be disregarded in relation to that loan relationship to that extent.''.'.[Dawn Primarolo.]
Schedule 25, as amended, agreed to.
Clause 82 ordered to stand part of the Bill.
The following Members attended the Committee:
Benton, Mr. Joe (Chairman)
Cunningham, Mr. Jim
Davey, Mr. Edward
Field, Mr. Mark
Harris, Mr. Tom