GROUP RELIEF (Hansard, 10 July 1973)

§ Mr. Patrick Jenkin
I beg to move Amendment No. 6, in page 64, line 9, leave out 'quoted on stock exchanges in the United Kingdom' and insert: 'listed in the Official List of The Stock Exchange'.

Mr. Deputy Speaker
With this amendment it will be convenient to discuss Amendment No. 7.

§ Mr. Jenkin
The amendments are consequential on a new clause added in Committee.

§ Mr. Patrick Jenkin
I beg to move Amendment No. 39, in page 64, line 32, at end add: 'but subject to sub-paragraph (7) below'.

Mr. Deputy Speaker
It will be convenient to discuss at the same time the following Amendments:
No. 35, in page 64, line 35, after 'company', insert: 'other than new consideration provided by way of a normal commercial loan'. Government Amendment No. 40.

§ Mr. Jenkin
This group of amendments is intended to correct what might have been a perverse effect of paragraph 1(6), to give an exception for normal bank lending where a bank might lend to a leasing company and then, in a separate and completely unconnected transaction, lease from the company a piece of office equipment. As the 1480 schedule stands, such a transaction would be caught, and this clearly was not the intention.

§ Mr. Ridley
I am grateful for these amendments, which meet a case that I made in Committee, but there is one further matter on which I should like clarification. I understand that if an asset is purchased by one company and leased to another—for instance, a shipping company might purchase a ship and charter it to another shipping company—the leasing company will not be allowed to help with the financing of the asset, either by making a loan to or by guaranteeing part of the loan of the main company.

§ Mr. Jenkin
With the leave of the House, Mr. Deputy Speaker, I should like to reply. I can understand my hon. Friend's concern. As I understand it, this is a situation where, for example, a bank has lent money to a leasing company in the normal course of its business and then, in a separate and unconnected transaction, leases from it a piece of office equipment, or, indeed, a ship, where the bank could be treated as an equity holder in the company to the extent of the loan. This could materially affect the company's relationship with other members of its group for the purpose of group relief.
My hon. Friend's amendment to solve this difficulty would make subparagraph (6) virtually ineffective. The avoidance arrangement at which the subparagraph is aimed could most commonly involve the provision of a normal commercial loan as defined in subparagraph (5).
Amendments Nos. 39 and 40, which are designed to meet the case of genuine hardship, provide that in the situation as I have just described it the bank's equity interest shall be deemed to be equal only to the cost of the equipment leased if this is less than the loan. It is considered necessary to retain this safeguard in order to avoid abuse. The sort of abuse 1481 that we have in mind is that groups of companies would set up a bank which would then make the loan to both the parties and seek to argue that these were normal commercial loans.
In those circumstances we think it wrong that the group relief should apply.

§ Mr. Patrick Jenkin
I beg to move, Amendment No. 41, in page 71, line 23, leave out from 1973 ' to 'above' in line 26 and insert: '(2) Sub-paragraph (2) of paragraph 8 or, as the case may be, sub-paragraph (2) of paragraph 9 above shall not apply if, during the period referred to in that sub-paragraph, the relevant company ceases to carry on a trade, in whole or in part, and a successor company begins to carry it on. (3) In sub-paragraph (1) and (2)'.

Mr. Deputy Speaker
With this amendment we are to take Government Amendments Nos. 42 and 43.

§ Mr. Jenkin
The purpose of this group of amendments is to relax some of the transitional rules governing the introduction of the new provisions on group relief contained in Clauses 28 to 32 and Schedule 12. I could give an explanation if any hon. Member wishes that, but I 1482 think that the clauses are reasonably clear.

§ Mr. Ridley
If the claimant company is, for example, in the general retail trade, would a transfer of the outlets of a particular part of the trade to a subsidiary give rise to disallowance of group relief? It seems rather arbitrary that if there is a change in any activity of this sort it could affect perfectly normal transactions lower down the scale. Perhaps my right hon. Friend is prepared to correspond with me on that point.

§ Mr. Jenkin
I gladly accept my hon. Friend's offer.