HC Deb 14 May 1992 vol 207 cc164-5W
Mr. Dunn

To ask the Chancellor of the Exchequer if any changes are proposed to the tax treatment of multinational companies.

Mr. Dorrell

A recent decision of the special commissioners ruled that certain payments made under equity notes—perpetual debt instruments where the loan is not repaid—were interest for tax purposes.

The two main grounds on which the special commissioners gave their decision were that the particular wording of the relevant double taxation agreement did not prevent such payments being interest for the purposes of that agreement and that section 209 of the Income and Corporation Taxes Act 1988 did not treat such payments as distributions.

If no action were taken there could be a loss to the Exchequer of up to £150 million a year. The Government therefore propose to bring forward legislation in the forthcoming Finance Bill.

The legislation will have two components. First, it will restore the general understanding of certain of the United Kingdom's double taxation agreements to what it was before the decision. Second, it will establish the relevant domestic law to include payments made under equity notes in the definition of distributions. The legislation will apply to all payments made from midnight tonight.