CHARGE TO INCOME OR CORPORATION TAX OF OFFSHORE INCOME GAIN (Hansard, 11 July 1984)

§ Sir William Clark
I beg to move amendment No. 97,in page 88, line 9, at end insert— '(lA) Where an offshore income gain arises by reason of the fact that the offshore fund has been a non-qualifying fund for part only of the period of ownership of the material interest of the person making the disposal and it would have been a distributing fund but for subsection (3)(a), (b) or (c) of Section 93 of this Act, the offshore income gain shall be reduced by the proportion that the number of account periods comprised within the said period of ownership for which the fund has been certified as a distributing fund bears to the total number of account periods comprised within that period. Provided that the offshore income gain shall not be less than the income available for distribution but not distributed in respect of the interest of which that person has disposed for the account periods for which the offshore fund was not certified as a distributing fund. For the purpose of this subsection income available for distribution shall include capital profits realised upon the disposal or part disposal of the interest or interests of the fund that caused the fund to be a non-qualifying fund during the said period of ownership.'. I trust that the House will forgive me if I speak to the amendment, having sat here all night and seen so manyamendments made formally.
A principal cause for concern in the legislation on offshore funds is the crude bludgeoning effect whereby if an offshore fund cannot always establish itself as a distributor fund, the consequential income tax charge on the investor is based not only on undistributed, rolled-up income, but on any increase in value arising fom capital growth within the fund. The United Kingdom standards would make it subject to capital gains tax, not income tax. That is inconsistent in legislation, the announced target of which was income roll-up funds.
The justification for this crude approach by the Government or the Treasury is that it is too complicated to distinguish capital gains tax, but that did not stop the draftsmen drafting complicated clauses on controlled foreign companies in order to deal with the equalisation arrangements.
The funds were told in November 1983 that they had to put their funds in order so that they could qualify for the tax position before the legislation. They had to get the funds in order by 1 January. How can that be done within five weeks? My amendment seeks in some way to ameloriate that harsh effect of the legislation. I know that it is too late now for my hon. Friend to accept the amendment, but will he give an undertaking that during the coming year he will keep a close watch on the matter and consider whether in the next Finance Bill we can come forward with more suitable and fairer amendments?

§ Mr. John Moore
I assure my hon. Friend that I shall give the matter close attention throughout the coming year. However, I cannot accept that outside industry did not receive sufficient notice. I shall not go into the details, but my hon. Friend will be aware of the relaxing and flexible changes that we made in Committee. To that extent, some of the problems that might have occurred should not now do so. I shall watch the matter with great care, and I hope, on that basis, that my hon. Friend will seek leave not to press his amendment.

§ Sir William Clark
In view of that explanation, I beg to ask leave to withdraw the amendment.

§ Sir William Clark
On a point of order, Mr. Speaker. Do we not have to put the Question on the amendments and then the Question, That the clause, as amended, stand part of the Bill?

§ Mr. Speaker
That is the case during the Committee stage of the Bill. This is the Report stage, and that is not necessary.