HC Deb 28 March 1996 vol 274 cc1183-95
Mr. Mike O'Brien (North Warwickshire)

I beg to move amendment No. 68, in page 47, line 34, at end insert— '(6) In the case of a debt in respect of which only credits or debits relating to interest are required to be brought into account under the provisions of this Chapter, sub-section (5) above shall not prevent any other provision of the Corporation Tax Acts from applying in relation to amounts other than interest.'.

Mr. Deputy Speaker

With this, it will be convenient to discuss the following amendments: Government amendment No. 32.

No. 51, in schedule 8, page 218, line 12, after 'If', insert `(a)'.

No. 52, in page 218, line 14, after 'accruing,', insert `and (b) credits representing the full amount of the interest are not for any accounting period brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship, then'.

No. 72, in page 225, line 4, leave out sub-paragraphs (4) and (5).

No. 71, in page 225. line 10, leave out the words

',or one of the main purposes,'.

No. 53, in page 226, line 29, after `period', insert ("the relevant period")'.

No. 54, in page 226, line 32, leave out from 'security' to end of line 35 and insert is available to another company at any time in that period;

  1. (c) for that period there is a connection between the issuing company and the other company, and
  2. (d) credits representing the full amount of the discount that is referable to that period are not for any accounting period brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship.'.

No. 55, in page 226, line 38, leave out from 'that' to end of line 42 and insert 'every debit relating to the amount of the discount that is referable to the relevant period is brought into account for the accounting period in which the security is redeemed, instead of for the relevant period. (2A) References in this paragraph to the amount of the discount that is referable to the relevant period are references to the amount relating to the difference between—

  1. (a) the issue price of the security, and
  2. (b) the amount payable on redemption, which (apart from this paragraph) would for the relevant period be brought into account for the purposes of this Chapter in the case of the issuing company.'.

No. 56. in page 226, line 49, leave out 'at any time' and insert 'for the relevant period'.

No. 57, in page 227, line 1, leave out from beginning to 'one' in line 2 and insert— '(a) there is a time in that period or in the period of two years before the beginning of that period when'.

No. 58, in page 227, line 4, leave out `at that time, or at any time in those two years'

and insert

`there is a time in that period or in those two years when'. Government amendments Nos. 38, 59 and 40.

Mr. O'Brien

This probing amendment is designed to clarify an issue regarding loan relationships. The changes in the Finance Bill to loan relationships will impact upon many companies throughout the country. In Committee there was considerable discussion about how great that impact would be. There were also a lot of amendments because of the need to clarify the Bill. It became clear that this was an enormously complex area of law, but the amendment focuses on one aspect that, in some ways, illustrates the overall problems that face businesses with loan relationships.

We were reassured in Committee that although this was a complex area of law, it would not cause enormous difficulties to smaller businesses because the complexities of the matter would impact mainly on larger corporations which have accountants and specialists able to deal with it. I hope that that is the case, but we have seen-as the amendment again illustrates-that there are areas of ambiguity that even a specialist might find difficult. The legislation seems to have been rushed and is often confused, and we will probably have to tidy it up in the years to come—at which time, no doubt, it will be a Labour Government who will have to do it.

Our proposal is specific. Clause 94 of the amended Bill deals, among other things, with perfectly ordinary trade debts that are interest-bearing. Such debts are within the loan relationships regime by virtue of that clause, in that the interest is brought into that regime. If the trade debts should turn out to be bad or doubtful, it appear—unfortunately—that no relief is available for the loss in respect of the debt itself. In contrast, relief is available in respect of the interest. It is at least arguable that clause 94(5) of the amended Bill will prevent the relief from being claimed as a trading deduction in the normal way for the bad debt.

The question whether the interaction of clauses 94 and 97 denies a trader any relief on bad trade debts was raised in Committee, and the Minister gave some explanation. To avoid ambiguity, however, it would be helpful if she would explain in further detail exactly what the Government are proposing, and that is why we tabled the amendment.

Mr. Tim Smith

Will the hon. Gentleman confirm that it is now Labour party policy to introduce statutory interest on the debts of companies? If so, would that be subject to this legislation? Would that not be an additional complication for small businesses?

Mr. O'Brien

The hon. Gentleman raises an interesting and important matter. I am not sure that it is directly applicable to the amendment, but as he has raised it—and as you have allowed the intervention, Mr. Deputy Speaker—I shall try to deal with it. We have received many representations from small businesses whose debts have not been paid, causing considerable cash flow problems. I am sure that the hon. Gentleman has such cases in his constituency, as I have in mine. When I go to visit small business men, I can almost guarantee that that issue will be raised, and I am sure that all hon. Members agree.

The various small business organisations have tried for a number of years to find ways of resolving the problem, and there are currently divisions of opinion within the small business community as to how it can be dealt with. The Government have listened to some of the organisations, and the Opposition have often listened to the same ones. We have reached somewhat different conclusions about what is needed to deal with the problem, but we accept that it is enormously important.

Labour is consulting on charging interest in relation to debts above a certain threshold, particularly in so far as it benefits small businesses. That is certainly something that has been requested in a much broader way by a number of small business organisations. I am not sure that we can meet all their requests. As I said, there have been conflicts even within the small business community about how to deal with the matter. It is certainly important that we tackle the issue, which is what we are trying to do, initially through consultation. We are flagging up some ideas and we hope to get a positive consensus from the business community so that we can resolve and deal with the issues. In due course, the Conservative party may well come on board on those ideas. It is important that, as far as possible, there is that consensus.

I am conscious of the fact that one small business person's bad debt is another's extension of credit. So, when dealing with such issues, one has to be careful that in benefiting one small business one does not damage the other. That is why we are conscious that there must be a threshold—perhaps the size of the business or the debt—at which we would consider charging statutory interest. It has to be done with care and with the degree of consultation necessary.

We are starting that process now. The Labour Front-Bench team has flagged up the issue and I know that the Government Front-Bench team has also been consulting small business. As far as possible, it is important that we take it out of the argy-bargy of political debate. If we can get that sort of consensus within the business community, it will be all the better for all of us.

I am conscious, however, that other hon. Members will want to speak on amendment No. 68 and that they have various other proposals that they want to deal with during this short debate. Our amendment makes it clear that clauses 74 and 94 would deny relief for bad trade debts. Perhaps the Minister can clarify the position and provide the reassurances that we seek. If so, we might be able to end the ambiguity and doubt, which does need clearing up, and we might not need to press the amendment, which is why I flagged that up.

The Government's adherence to the Child Support Agency syndrome illustrates the problem that has faced us throughout the debate on loan relationships. The Government get a good idea—as I said in Committee, the concept of loan relationships is enormously important and there is a broad consensus of support on both sides of the House—but, as we have found so often, with self-assessment, for example, and with yesterday's amendment on taxes for transport and so forth, they fail to consult properly and rush it into legislation, thereby undermining the chances of it succeeding as well as it could.

After we finished the Committee stage of the Bill, I received a letter from the Chartered Institute of Taxation, which continues to have certain doubts about the way in which we dealt with loan relationships. We all accept that the Government and the Minister, within the time constraints that they allowed themselves, have tried to consult as much as possible. On behalf of the Opposition, I would certainly concede that.

The difficulty that the Minister and the Treasury faced was the short period that they gave themselves in which to consult. That is what has led to the difficulties and ambiguities tackled by amendment No. 68 and why we will return to the matter in years to come. That is unfortunate. I would rather that we had slightly more time to consult properly and deal with the issues. Then we might have avoided having to table late amendments to try to resolve ambiguities.

On last-minute amendments, the Government have tabled several amendments that are being taken as part of this group. Will the Economic Secretary set out exactly what each amendment proposes, so that we can be absolutely clear about it? I think that I understand what the Government are about with them, but they are there to tidy up the Bill and it is important that everything should be laid out plainly for everyone to read.

4.30 pm
Mr. Barry Legg (Milton Keynes, South-West)

I join the hon. Member for Bristol, South (Ms Primarolo) in welcoming and supporting the Government's change of heart in respect of the seven amendments that I have tabled. In the debate to be found between columns 629 and 632 of the Official Report of the Committee, I highlighted the lack of symmetry under existing legislation on relief for interest and on deep discount securities.

My amendments relate to paragraphs 2 and 17 of schedule 8. They would cure any potential mismatches that would exist where interest is taxed as being receivable but the interest accrued by the borrower would not get relief. That is a most welcome step forward by the Government which will help many businesses with their tax affairs.

Hon. Members who were in Committee will remember that, in column 631, I related the problems that joint venture lenders sometimes have. I referred to a particular case that my hon. Friend the Economic Secretary was kind enough to say she would consider further. My amendments deal with mismatches but the House may well have to return to relief for joint venture lenders, especially as regards bad debt provisions.

The amendments relating to paragraph 17 provide that, where deep discount securities exist, relief for the discount is not deferred in the hands of the borrower when it is brought into account in the hands of the lender under corporate debt rules. They are a worthwhile tidying-up of the legislation.

Finally, I want to raise with my hon. Friend the Minister another matter relevant to schedule 8, which is the proposal of certain building societies to take advantage of the provisions of the Building Societies Act 1986 to convert themselves into public limited companies. It is vital that the new provisions on corporate debt that we are discussing create no impediment to or penalty for that process. I hope that she will be able to confirm that there should not be a tax problem on the transfer of the loan relationships of a building society on conversion to a limited company.

Mr. Matthew Carrington (Fulham)

Amendment No. 71 would clarify the tax avoidance provisions in schedule 8. It would remove the broadening part of the schedule, the words or one of the main purposes". That would remove the uncertainty in interpretation by disallowing tax relief only where the obtaining of that relief was the main purpose of the transaction. In other words, as it stands, the existing phrase could cover a wide range of activities—particularly when a company enters into an ordinary loan transaction but clearly no loan transaction has been entered into except in the circumstances where tax relief would he obtainable on the interest payable under that loan. According to a strict interpretation of the current wording, the Inland Revenue could disallow the tax relief on the interest.

The Inland Revenue could have no such intention and no reason to use the wording of the schedule to achieve that end. However, the fact that the powers exist for it to do so is causing great uncertainty in both the business and the commercial worlds. The concerns that my amendment attempts to address were raised with me by the Confederation of British Industry. It has examined the impact of the schedule and is very concerned about its potential effect on its members.

It is true that tax avoidance definitions can be drawn very widely, and it may be that the wording is drawn no more widely than existing tax avoidance provisions. However, because of the uncertainty that it creates, I suggest that the fact that it has been done before is not a particularly good reason to continue it this time. It is important that anti-avoidance legislation is clear, simple and capable of interpretation by commerce and industry with as much certainty as possible.

I think that the measure fits in quite well with the tax simplification measures about which the Inland Revenue is consulting. I hope that, in a spirit of simplification, my hon. Friend will accept my amendment—or, at the very least, reassure me, business and commerce that the Inland Revenue does not intend to interpret the present wording of schedule 8 in such a broad way as to attack perfectly legitimate commercial transactions that, by their very nature, have a tax element.

Mr. Douglas French (Gloucester)

I shall speak to amendment No. 72 standing in my name which deletes sub-paragraphs (4) and (5) of paragraph 13 of schedule 8. This amendment also relates to loan relationships and it addresses a matter which is of particular concern to the leasing industry—indeed, it was raised with me by the Finance and Leasing Association and by a number of its member firms.

As they stand, the sub-paragraphs introduce a tax anti-avoidance provision that is very broad and uncertain in its application. Sub-paragraph (5) uses, and subparagraph (6) defines, a tax advantage. The definition of "tax advantage" is borrowed from the Taxes Act 1988 and I submit that it is not applicable in this different context.

When it is used in other places, it forms part of the rules that are designed to deal with dividend stripping and similar transactions in the securities industry. They are accepted as being broad and complex and, for that reason, provision is made for a pre-transaction clearance procedure and for a special appellate body—the tribunal—which is set up to hear appeals from the special commissioners by way of a rehearing before the normal appeal by way of a case stated to the High Court. That is thought necessary in the context of the securities industry, but the Finance Bill makes no similar safeguards in the context of the leasing industry.

Sub-paragraph (4) prohibits an interest deduction if the main purpose, or one of the main purposes of the loan or related transaction is the securing of a tax advantage as defined. This creates uncertainty, because it is very difficult to define a "main" purpose. If it is so difficult to define "main" purpose and no clearance procedure is provided for in the rest of the Bill, it is certain to inhibit the type of loan transactions in which members of the Finance and Leasing Association become involved.

The subsection also covers a tax advantage obtained by any person—not only one of the parties to the loan relationship or related transaction.

Although a lease is considered not to be a loan relationship in the definition contained in clause 75, there is frequently a loan relationship between a leasing company's parent and the leasing company to enable the lease to be financed. For example, a bank will provide finance to its leasing company to purchase assets to be leased.

The industry fears that, as one of the purposes of a lease is to make best use of capital allowances, interest on the parent company loan might be refused as a deduction to the leasing company on tax avoidance grounds.

To put it another way, under the subsections it can be argued that the purpose of the loan relationship is partly to enable the leasing company to claim capital allowances. The benefit of the capital allowances passes, by way of reduced charges, to the business that makes use of the equipment. The obtaining of the allowances for the benefit of the end user might be regarded as one of the "main purposes- of the loan relationship. If that were so, the leasing company would be denied a tax deduction in respect of the interest payments made to its parent.

That is not the end of the matter. If these paragraphs were enacted, banks and leasing companies would undoubtedly endeavour to protect themselves against such a possibility by including tax warranties and an indemnity in the contract with the end user. In that way, the economic burden of these anti-avoidance provisions would be borne by bona fide businesses doing their best for the British economy and with no direct connection with, and possibly no knowledge of, the basis of the original loan relationship. That cannot be intended.

This is a matter of very deep concern to the leasing industry, which is too important an industry to have its legitimate activities curtailed because a clause is capable of being prayed in aid to such potentially damaging effect.

Mr. Mike O'Brien

I am grateful to the hon. Gentleman because he raises an interesting and important point. Will he tell us a little more about what consultation was undertaken by the Government about these important matters with the leasing industry, and about the results of that consultation?

Mr. French

My contribution is based on discussions that I had personally with the director general of the Finance and Leasing Association, with his tax adviser, and with other leasing companies, including Lloyds Leasing, and RoyScot in Cheltenham near my constituency. They all use the same argument, and I am convinced that there is great merit in it. They tell me that representations have been made, as they are in the usual course of any Finance Bill, to the Treasury and to the Inland Revenue, and they are therefore very hopeful that some of the points that I am articulating on their behalf will be well received and that some response will be forthcoming from the Minister.

Mr. Carrington

I think my hon. Friend is making a point similar to the one that I made before, but in the specific context of the leasing industry. The difficulty, as I understand it, is that the Inland Revenue has been in the habit of having its anti-avoidance provision drawn very broadly and then not applying it except when it believed that there was a genuine abuse. The point that my hon. Friend and I are making is that, in simplifying the tax regime, it would be better if the Inland Revenue were more specific about the type of avoidance it is attacking rather than taking general powers to itself.

Mr. French

I accept that point. The leasing industry does not wish to be exposed to the risk of actions being brought against it purely because the sub-paragraphs are couched as broadly as they are. The industry would prefer a more precise definition so that, in undertaking any transactions, it can be certain that it is complying with the law as it stands—as it would wish to do—and does not have to inhibit its business on the outside chance that something it does may be interpreted, possibly on a maverick basis, unexpectedly by the Inland Revenue as contravening the Finance Bill.

4.45 pm

The leasing industry is an important industry, and the importance of ensuring that it has a satisfactory tax regime should not be underestimated, especially in view of the important role that the leasing industry increasingly plays in the private finance initiative. This is a matter of great importance to most members of the Finance and Leasing Association.

I hope that, in her reply, the Minister will recognise the important role played by leasing firms and acknowledge that the need to ensure that there is no tax avoidance should be balanced with the need to ensure that legislation is not drafted so broadly that it unnecessarily inhibits legitimate business activity.

Mr. Tim Smith

I have a great deal of sympathy with what my hon. Friends the Members for Gloucester (Mr. French) and for Fulham (Mr. Carrington) say, because they are both worried about the broad way in which the anti-avoidance provisions are drawn.

I raised that matter in Committee. I know that my hon. Friend the Economic Secretary gave it some attention, and I am hopeful that she might be able to say something reassuring on the record in due course. The hon. Member for North Warwickshire (Mr. O'Brien) complained that several Government amendments had been introduced at very short notice—indeed, on Monday. I notice that his amendment was also tabled on Monday, so we had no advantage over the Opposition.

The Economic Secretary to the Treasury (Mrs. Angela Knight)

I shall try to answer the points that have been made to me.

I start with the amendment tabled by the hon. Member for North Warwickshire (Mr. O'Brien). He should keep in mind the three basic principles that I repeated in Committee several times—that the tax should recognise all debits and credits, calculated according to recognised accounting methods, and the figures should follow those produced in the accounts wherever they are acceptable. That covers the points that he made.

Subsection (5) of what is now clause 74 is intended to give reassurance that, if a loan relationship is fully within the new rules, these are comprehensive and cover all aspects of that loan relationship, but clearly, where only the interest element of the loan relationship or interest on a debt that is not a loan relationship is within the new rules, those rules can apply only to that interest. Any other elements of the debt, such as capital gains or losses, are automatically dealt with under the appropriate separate legislation.

The point that the hon. Member for North Warwickshire made related to interest on late payment of a trade debt. Supposing that a company sold some widgets to another company for which the second company had not paid and interest was charged on that debt as a trade debt, the interest would be dealt with under the chapter II regime; the trade debt would be dealt with as a trade debt as it is at the moment. That is the principle behind current legislation; that is the principle that will be followed with the chapter II rules. Indeed, it fits in with what is now clause 94. The existing rules include all forms of interest, however they arise; the new rules cover only interest arising on loan relationships. Clause 94 sweeps up other interest not arising from loan relationships, such as interest on compensation awards and on overdue trade debts.

One of the difficulties with the amendment moved by the hon. Member for North Warwickshire is that it creates ambiguity. I accept that he is trying to put clarity into the situation, but the amendment would create an ambiguity. For example, there are many true loan relationships that are and should be fully within the new rules, whereas in practice the only debits and credits that are required to be brought into account under the new rules relate to interest. Most straightforward loans from a bank are likely to fall into this category.

As the hon. Gentleman knows, the vast majority of companies in this country have straightforward loans from banks. Therefore, they already account on an accruals basis, they are already taxed on an accruals basis and they fall within this legislation—they do not have to make any changes because the methods by which they already account and are taxed are fully covered. If he were to press his amendment and if it were part of the legislation, it would create a picture of companies shopping around old and new legislation.

I suggest to him that the first thing that would happen is that a couple of lawyers would look at the legislation and say that the points in his amendment were covered by the clause before it was amended. They would seek to see why we had put a legal tautology into the Bill, and that would result in us opening up an ambiguous situation that is currently covered. The way in which it has been set out in the clause as it stands is not unusual, has not attracted much attention and better sets out the position that we are trying to ensure by this chapter and by these rules. I urge the hon. Gentleman not to push his amendment any further.

I turn now to the amendments tabled by my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg)—that is, amendments Nos. 51 to 58. He made many of these points in Committee and, on reflection, I believe that what he proposes is correct. His amendments refer to anti-avoidance measures in schedule 8, and the part of the schedule to which the amendments refer is tax relief on interest on loans between connected companies.

In effect, my hon. Friend is seeking to change the rules as they are set out in the schedule to cover what is perhaps commercial reality. He is seeking to ensure that where two companies are connected, they are accounting on an accruals basis, with only the odd exception. The lender company A is being taxed on the interest that it is accounting as receiving, even though it has not received it. I believe that my hon. Friend's amendments—both in relation to interest and the other more complicated set of amendments—are acceptable. I urge my hon. Friends to agree with the amendments.

Mr. Mike O'Brien

I am interested in the fact that the Minister is accepting the amendments proposed by her hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) and I entirely accept that. Did the Inland Revenue have any part in drafting the amendments? Did it approve them? The suspicion might arise in the minds of some more suspicious than I that these were Government amendments that Ministers felt—because of the level of embarrassment with these things over loan relationships—they might prefer in a Back Bencher's name. However, I am sure that that is not so.

Mrs. Knight

This was discussed at some length in Committee and I then discussed it further with my hon. Friend. I felt that he put a good case in Committee. We have ensured that the amendments that have been drafted are legally correct—that is a perfectly sensible route to take. My hon. Friend highlighted these points in Committee and showed what could be the commercial consequence if we retained the tighter anti-avoidance provisions for companies that come within the chapter 2 provisions, and there could be some difficulties.

As I have said so many times during the course of the Bill, where a good case is put to us—by whomever it might be—we would be remiss if we did not accept it as being good and accurate, and did not accept the amendments accordingly or, as I have done, place them where we felt it was right to do so. My hon. Friend made a point about joint venture lenders. As I said to him earlier, we believe that the provisions will work satisfactorily.

My hon. Friend also raised the issue of building societies and their concern when they were converting to public companies. I assure my hon. Friend that Inland Revenue officials and I are aware of the building societies' concerns and are in correspondence with their representatives regarding conversions and takeovers. Our current understanding of the position is that there should not be a problem. It appears that the relevant transactions can be structured so as to avoid any difficulties. Although we cannot give reassurances about hypothetical situations, if real problems emerge in the future we will be happy to consider them. I hope that my hon. Friend finds that response satisfactory.

The next points were raised by my hon. Friends the Members for Fulham (Mr. Carrington) and for Gloucester (Mr. French). I hope that they do not mind me saying that their points are variations on the same theme. The Government are aware of concerns that have been raised by my hon. Friends and by others regarding the particular anti-avoidance provisions in paragraph 13. This paragraph was amended significantly in Standing Committee but, because of the concerns that my hon. Friends and others have raised, I take the opportunity to allay some of the fears that have been expressed about the anti-avoidance rules.

Paragraph 13 of the schedule disallows tax deductions to the extent that tax avoidance is the main motive behind a loan relationship. We have been told of concerns that this could be interpreted as preventing companies from getting tax relief for legitimate financing arrangements. I am happy to offer a reassurance that this is not the intention of the legislation. The paragraph denies tax deductions on loans that are for the purpose of activities outside the charge to corporation tax. Among other things, this will ensure that United Kingdom branches of overseas companies do not get tax relief for borrowings that are for overseas activities outside the United Kingdom tax net.

We have been asked whether financing—which, for example, is to acquire shares in companies, whether in the United Kingdom or overseas, or is to pay dividends—would be affected by the paragraph. In general terms, the answer is no, but the paragraph might bite if the financing were structured in an artificial way.

It has been suggested that structuring a company's legitimate activities to attract a tax relief could bring financing within this paragraph—some have gone so far as to suggest that the paragraph might deny any tax deduction for borrowing costs. These suggestions are clearly nonsense. A large part of what the new rules are about is ensuring that companies get tax relief for the cost of their borrowing.

One specific point has been put to me by my hon. Friend the Member for Gloucester—that is, borrowing by a finance leasing company to acquire assets where this is more tax efficient than the lessee investing in the assets direct. Again, I am happy to offer a reassurance. Where a company is choosing between different ways of arranging its commercial affairs, it is acceptable for it to choose the course that gives a favourable tax outcome. Where paragraph 13 will come into play is where tax avoidance is the object, or one of the main objects, of the exercise.

Companies that enter into schemes with the primary aim of avoiding tax will inevitable be aware of that. The transactions we are aiming at are not ones which companies stumble into inadvertently. As one top tax adviser said recently, companies will know when they are into serious tax avoidance; apart from anything else, they are likely to be paying fat fees for clever tax advice and there will commonly be wads of documentation.

The last thing I want to do, however, is set out a list of so-called acceptable or unacceptable activities. Borrowing for commercial purposes can be structured in a highly artificial way in order to avoid tax. If we said that borrowing for certain types of activity would always be okay, tax advisers would quickly take advantage and devise artificial financial arrangements simply to avoid tax. Provided that companies are funding commercial activities or investments in a commercial way, they should have nothing to fear. If they opt for artificial, tax-driven arrangements, they may find themselves caught.

It is clear that a balance must be struck between meeting the concerns that have been raised and weakening the provision in those instances where it needs to apply, but I can assure my hon. Friends that we shall keep the matter under review.

5 pm

I now turn briefly to the Government amendments. Amendment No. 32 would make a minor change to the provision for debt contracts and options. The hon. Member for North Warwickshire wanted an explanation. Let me give him a brief explanation of the amendment, which results from a drafting error.

Without the amendment, payments relating to contracts constructed by reference to hypothetical loan relationships could not be taken into account under the rules for derivative transactions.

Amendments Nos. 38, 59 and 40 address another issue altogether—double tax relief. The basic rule has always been that double tax relief is given in proportion to the amount of foreign interest that accrues to the company concerned. The new rules for corporate debt do not change that principle, but a number of minor and consequential amendments have been needed, including a specific provision preserving the position of non-traders under the new rules.

The amendments would enable regulations to extend to trading companies the application of the provision granting double taxation relief to non-traders. Using regulation to do that will facilitate consultation with those affected in the financial markets, so that the different authorised accounting methods available can be taken into account. It will also enable any necessary safeguards against loss of tax to be built in. I hope that the hon. Gentleman finds those explanations satisfactory.

Mr. Mike O'Brien

The amendments appear to give the Treasury the power to make regulations to extend to general insurance the rules applying to life assurance companies. Amendment No. 59 can be criticised in that it does not state sufficiently precisely what the regulations will do. Can the Minister tell us precisely what powers to regulate are being taken and what the regulations are intended to do?

Mrs. Knight

The regulations are intended to ensure that double tax relief is available to financial traders. I cannot specify precisely how they will be formulated because we need to discuss the matter with the financial traders and those involved. There is a requirement to get it right. We intend to ensure that tax relief is available and to do so in the right way.

The hon. Gentleman asked about insurance. The reason that insurance is mentioned—and there is a special mention of insurance credits—is that insurance is one of those particular industries that always has a separate mention, as he will recall from the Bill. For non-insurance companies, all overseas interest on which relief for overseas tax might be due is either a trading credit or a non-trading credit. As so often happens, there are special twists for insurance companies.

Certain non-trading credits are not covered by the existing rules for such credits in section 807(A)(3) of the Income and Corporation Taxes Act 1988. The amendments make sure that such insurance credits may also be the subject of regulations. Again we want to discuss the matter with the industry to establish exactly what rules are required so that we can be sure of getting them right. I hope that I have given the hon. Gentleman the explanation he wanted.

Mr. Mike O'Brien

We have had an interesting and informative debate. I share many of the concerns so well expressed by Conservative Members, particularly the hon. Members for Gloucester (Mr. French) and for Fulham (Mr. Carrington) about—as the hon. Gentleman for Gloucester put it—the need not to draw anti-avoidance provisions so broadly that they interfere with legitimate business dealings. That is a good lesson for us all. It also builds on the important proposals for simplification made last year by the hon. Member for Beaconsfield (Mr. Smith).

Tax legislation should be as clear as possible, and concerns were rightly expressed about the lack of clarity and the difficulties that that can create. In many ways, today's debate has demonstrated the best side of the House of Commons in that we sought to clarify ambiguities and get the legislation right. I am pleased that the Minister has adopted a positive attitude to the concerns of Conservative Back Benchers and the Opposition.

I understand what the Minister said about amendment No. 68. By and large, I accept that there may be a problem in pursuing the amendment and at the end of my remarks I shall seek the leave of the House to withdraw it.

Government amendments Nos. 38, 59 and 40—particularly amendment No. 59—demonstrate the price of rushing through measures without proper and full consultation. As has already been flagged up in the debate, it is important that we get tax legislation right and that there is full consultation with the various groups concerned.

The amendments demonstrate the price to be paid if that full consultation period is not allowed. The Government must now insert into the Finance Bill the ability to make regulations, the detail of which they have not yet worked out so they need to consult further. I accept the Minister's promise that such consultation will take place. I also accept that there is no prospect of further delay in loan relationships legislation, so the best way of proceeding is probably to put into law a provision allowing the Government to make regulations after full consultation has taken place, so that we can clear up these matters.

Giving the Government powers to make regulations is not the best way to address these issues, but in the circumstances, it is perhaps understandable. That said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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