Schedule 4 (Hansard, 27 May 1970)

§ Mr. Patrick Jenkin
As I have said, in other circumstances, we would have made a number of points about this. It is a matter for regret in all parts of the Committee that technical legislation of this sort has to be passed in such great haste because of the circumstances in which we find ourselves, but there seems no other way out of the difficulty.
I wish to ask the Chief Secretary one or two questions on which I feel sure his brief will enable him to give some sort of answer. When we consider paragraph 6 of the Schedule the right hon. Gentleman will recognise, as I recognised, an old friend. We found this in the Eleventh Schedule of the 1965 Finance Act. It has been amended in this paragraph to meet some of the points which we have put to Ministers in earlier years. There is, however, one figure which puzzles us and for which I think an explanation is required.
The Chief Secretary will recollect that this is a problem of treating certain interest payments overseas as if they were distributions for the purpose of Schedule F tax and corporation tax. Hitherto, we have always regarded a company as part of a group if there was a 75 per cent. shareholding. In this Schedule 75 per cent. is repeated in three or four places but in subparagraph (cc) there is a requirement that where 90 per cent. or more of the share capital of the company which issued the securities is directly owned by a company resident in the United Kingdom, both the company which issued the securities and the company not resident in the United Kingdom are 75 per cent. subsidiaries of a third company which is resident in the United Kingdom ". 1867 Why, in that one case, is it necessary to insist on a 90 per cent. shareholding whereas in every other case it appears that a 75 per cent. shareholding is adequate to entitle the company to the benefits of this provision?
There seems to have been some doubt about the drafting of paragraph 9(5). The Chief Secretary will recognise that this inserts a new Section into the Taxes Act to provide for cases covered by Section 54 of the Companies Act where financial assistance is given for company employees and salaried directors acquiring shares in the company. The paragraph says: Where under a scheme … trustees receive interest from such employees or directors then, if and so far as the scheme requires "— these are the key words to which I draw attention— an equivalent amount to be paid by way of interest by the trustees to the company,… certain exemptions follow.
That wording seems to suggest that the amount must be exactly equivalent in all the circumstances. I wonder whether that is intended and whether it would not be right to say that it requires the amount to be paid by way of interest, and so on, and in the last line to leave out the word " that " and finish with the words up to an equivalent amount. Then the amount of interest would not have to be the same, but there could be relief to the extent that the tax was, in fact, paid. If it is intended that the amount should be exactly equivalent, that seems a very limiting factor. I seriously question whether that is intended, but that is what it provides as drafted on the best advice that I can take.
I apologise to the Chief Secretary for raising these two rather technical points which are difficult to deal with in our current procedure, but people outside who have to operate these rather complex provisions would like to know why in one case the share capital has to be 90 per cent., whereas in all others 75 per cent. is adequate, and whether it is intended that the interest should be equivalent or that relief should be up to the amount actually paid.

§ Mr. Diamond
I agree with the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) about the difficulty of discussing complex Clauses of this kind shortly and that it would be to 1868 everybody's advantage if more time could be spent on them. However, these are all relieving Clauses, with the exception of two drafting Amendments. That does not mean that they could not be well discussed, but it is less objectionable if they are not well discussed if they are relieving Clauses than if they are Clauses introducing taxation.
I should like to deal with the hon. Gentleman's second question first. Take a scheme under which money is advanced for the purchase of shares in a company and perhaps for the purchase of shares by directors and, therefore, a trustee has to be interposed in between. There would be interest paid on such a loan which would be paid to the trustees and they in turn would pay interest. As the law stands, in one case the interest would not be relieved for tax purposes, and in the other case it would. Therefore, we are envisaging circumstances in which this anomaly should be removed where exactly the same amount of interest is going through two pairs of hands.
That is all that is happening. It is right that it should be the same amount of interest. One is envisaging circumstances in which it could only be the same amount. In practice, we have come across this difficulty, but we have not come across the difficulty in which there would be a lesser payment. We are deliberately catering for the circumstance about which the hon. Gentleman asked.
On the hon. Gentleman's first question, 90 per cent. is more appropriate than 75 per cent. in this case because the maximum possible holding of the nonresident co-subsidiary—which is the circumstance we are considering in which there is a co-subsidiary which ceases to be a co-subsidiary by virtue of a merger —in the resident company subsidiary is that much less and the case for treating the interest as a disguised dividend is that much weaker. I think that the hon. Member will wish to study that.

§ Mr. Patrick Jenkin
I am most grateful to the right hon. Gentleman. I am sure that he is absolutely right. Those who advise me on these matters and I will want to study most carefully what he has said. No doubt they will wish to make representations to my right hon. Friend in due course.