§ Sir Brandon Rhys Williamsasked the Chancellor of the Exchequer if he will introduce legislation to make the service of value added loan stocks, indexed debentures and deep discount issues permissible as a prior charge in the calculation of corporation tax; and if he will make a statement.
§ Mr. RidleyInterest on value added loan stock is—if paid to a company—in general already allowable as a deduction in computing the issuing company's profits, to the extent that it does not exceed a reasonable commercial return on the stock.
The treatment of indexed loan stock depends on the terms of the stock. Where indexation to reflect inflation is in the form of an uplift of the principal, this will generally be a capital item and so not deductible against the company's profits; but the interest payable on the stock is deductible. Where indexation takes the form of additional interest to take account of inflation the additional interest is deductible.
For deep discount stock issued by companies, my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) announced proposals in his Budget last March for new rules whereby the discount would be spread over the life of the stock with the issuing company able to set annually against its profits the amount of discount accruing each year. We shall be announcing as soon as possible what action we intend to take on these proposals.