Mr. Flight: I thank you, Mr. Gale, and I apologise.
Although I have not tabled an amendment on the issue, I want to mention the insurance industry's position. We have already dealt with the position of Lloyd's, and I want to deal with the major reform introduced by clause 83 and schedule 29, which provides tax relief for purchasing goodwill and other intangible assets. The insurance industry's concern is that, although insurance companies writing life assurance business are within the regime in which they purchase royalties and computer software, they are not benefiting and will not benefit from the goodwill reform. Paragraph 78(1) excludes intangible fixed assets held for the purpose of life insurance business. The reason why that is the case is a fundamental question. Surely, if a life insurance company purchases goodwill, it should be treated as any other company.
Column Number: 350I suspect that the Government's argument for exclusion will be that the special method of taxation for life insurance companies, known as the IE systemincome minus expenditureis primarily a charge on policyholders' investments, and that goodwill relief is a matter for shareholders. It may be accepted that the new regime needs to be adapted so that it applies appropriately to the IE system, but surely goodwill held by shareholders outside the insurance companies' long-term business fund should in principle be entitled to the relief available to most other corporate taxpayers.
The Government's decision not to allow relief for goodwill purchased by insurers writing life assurance business, and held outside the long-term business fund, contrasts with their acceptance of the principle elsewhere in the Bill of the exemption from tax of capital gains on substantial shareholdings. Elsewhere, shares held by a life insurance company outside the long-term business fund qualify for relief, just as the shares of any other company would.
What is the logic on which the particularly narrow category of outside assets of the insurance industry has been excluded? Do the Government have the matter under consideration, and are they likely to include it, according to the logic of what they have done in other parts of the Bill?
Mr. Burnett: I should like to raise a small point of clarification with the Economic Secretary. Paragraph 56 is headed:
Chris Grayling: I want to make a brief probing point and I apologise to the Economic Secretary if he covered it in his earlier comments when I had to slip down the Corridor to a Select Committee.
The Economic Secretary will be aware that in the telecommunications and media sectors there have recently been some substantial write-downs of intangible assets following, for example, the Vodafone acquisition of Mannesmann. What would be the tax implications for substantial write-downs and future potential write-downs of 3G licences?
Column Number: 351John Healey: Perhaps I may take those points in reverse order and deal first with that raised by the hon. Gentleman. I understand the tension between Select and Standing Committees, having experienced that myself. I refer him to the Official Report because substantial write-downs were dealt with earlier in our discussion. If he feels that I did not respond adequately to his hon. Friend the Member for Fareham, I encourage him to tackle me again.
The hon. Member for Torridge and West Devon asked about group roll-over provisions. My advice is that the rules already have the effect that he wants, so it is unnecessary for the measure to be amended.
On the specific concerns raised by the hon. Member for Arundel and South Downs about the life assurance industry, he will not be surprised to know that the Association of British Insurers has already raised the matter with the Revenue. I shall try to give an explanation of the provisions as they stand and then some encouragement and an assurance that significant consideration is being given to such matters.
The hon. Gentleman asks why a life company does not receive any relief for write-down of its goodwill under the schedule. There are two reasons. The way in which we tax life assurance companies on the income accruing for policyholders means that it would not be appropriate to allow write-down of goodwill against policyholders' income. Goodwill relates entirely to the shareholders. The ABI accepts that as a reasonable argument and I believe that the hon. Gentleman acknowledged it. As a rule, goodwill is only ever acquired by a life company for payment if there is what the schedule calls a tax-neutral transfer. That means that goodwill would never become an asset subject to the schedule.
However, the ABI believes that there may be cases in which goodwill is purchased from unconnected parties and is not held in the life company's long-term business fund, which is the point that the hon. Gentleman made. The ABI argues, as he did, that in such a case relief should be given. I am not persuaded that the case for giving relief in such circumstances is strong enough. It is certainly not right for relief of that type of goodwill to be set against policyholders' income, and the existing capital gains reliefs, like indexation and roll-over, remain available for it.
Let me also say that rules for life assurance taxation will not be static during the next few years. In the Budget, my right hon. Friend the Chancellor announced that consultation on reforms to corporation tax would start later this summer. Clearly, such reforms will include life assurance company taxation. Changes are also likely because of developments elsewhere, such as the Financial Services Authority's review of regulatory reporting requirements, which are used for tax purposes.
The hon. Gentleman asked for confirmation that the matters that he raised are under consideration. I hope that my explanation suggests that that is the case. I assure him that the treatment of goodwill will be kept fully in mind when considering any possible future changes.
Column Number: 352Finally, as this is a clause stand part debate, I conclude by saying that I welcome the broad support of the Committee for the new provision, which puts in place a comprehensive regime that will provide consistent treatment of a company's expenditure and receipts in respect of intangible assets. The new regime replaces what I described previously as an outdated, incoherent accretion of rules based on previous judicial decisions and occasional legislation stretching back for more than 150 years. It is a significant further step in the Government's programme of corporate tax reform. The measure has been subject to extensive consultation, which has produced a better set of provisions. The end result is that the reform has been widely welcomed outside the House, and I hope that it will also be supported by the Committee.
Mr. Flight: I agree with the Economic Secretary that the reforms are broadly welcomed and again express appreciation for all the work that the Inland Revenue has done in addressing difficult issues.
On the specific insurance point that I raised, I was pleased to hear the Economic Secretary's comments. Materiality is the crucial issue. If the Government were to perceive a material aspect, they would probably see the justice of the argument. However, overall, the measures are very welcome.
Mr. Burnett: The provisions are welcome, and I am grateful for the Economic Secretary's assurance on degrouping. So that it is absolutely clear for the record, is it the Government's view and intention that it should not be necessary for the disposing company to remain a member of the group when the expenditure on other assets is incurred? That is my understanding of what the Economic Secretary said.
John Healey: That is correct.
Question put and agreed to.
Schedule 29, as amended, agreed to.
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