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Session 1997-98
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Standing Committee Debates
Finance (No. 2) Bill

Finance (No. 2) Bill

Standing Committee E

Thursday 4 June 1998


[Part I]

[Mr. John Butterfill in the Chair]

Finance (No. 2) Bill

(Except Clauses 1, 7, 10, 11, 25, 27, 30, 75, 119 and 147)

4.30 pm

Mr. Michael Fallon (Sevenoaks): On a point of order, Mr. Butterfill. In your absence this morning we debated the effect of capital allowances on the strength of the small and medium-sized sectors of the economy. The Paymaster General and his colleague withheld from the Committee the news that interest rates have been increased for the sixth time since the Government came to power, on the day that the permanent secretary has resigned from the Treasury amid accusations that the economy is being run into the ground by the Grosvenor house gang. Given that a further interest rate rise could well be imminent this evening, will he ensure that future rate rises are communicated immediately so that our deliberations on the economy might take them into account?

The Chairman: I am afraid that that is not a point of order. The timing of announcements by the Bank of England is not a matter for the Chair. However, I have noted the hon. Gentleman's point.

Mr. Ian Stewart (Eccles): On an important point of order, Mr. Butterfill. May we please remove our jackets?

The Chairman: Members may do so.

Clause 85

Non-resident insurance companies: tax representatives

The Paymaster General (Mr. Geoffrey Robinson): I beg to move amendment No. 197, in page 68, leave out lines 15 to 23 and insert

    "(2) In this section `overseas insurer' means a person who is not resident in the United Kingdom who carries on a business which consists of or includes the effecting and carrying out of

    (a) policies of life insurance;

    (b) contracts for life annuities; or

    (c) capital redemption policies.".

The Chairman: With this it will be convenient to take the following amendments: No. 70, in page 68, line 42, leave out "is" and insert

    "as, when he took out the policy".

No. 71, in page 69, line 9, leave out "residence" and insert "business".

No. 72, in page 69, lien 37, after "person" insert

    "having a substantial business connection with the overseas insurer who has agreed to act in that capacity".

Mr. Robinson: This clause will require certain overseas insurers to have a tax representative in the United Kingdom, Section 552A(2) of the Income and Corporation Taxes Act 1988 defines an overseas insurer. The clause will potentially apply section 552A to all non-resident insurers who carry on a business that effects and carries out policies of life insurance, contracts for life annuities or capital redemption policies. As the proposed new subsection (4) shows, the clause will not alter the section's intended scope because the conditions that must be satisfied before the section would apply to a particular non-resident insurer will not be changed.

The Chairman: Order. With the Committee's approval, it would be advisable to allow a wide debate rather than to take stand part separately.

Mr. Philip Hammond (Runnymede and Weybridge): On a point or order, Mr. Butterfill. Will you clarify whether there will be a separate debate on amendment No. 191?

The Chairman: I can confirm that there will be a separate debate on amendent No. 191.

Mr. Nick Gibb (Bognor Regis and Littlehampton): I would like to move the amendments that are tabled in my name and those of my hon. Friends.

The Chairman: Order. I thought that the hon. Gentleman was about to make a point of order.

Mr. Gibb: No, Mr. Butterfill, I should like to speak to amendments Nos. 71 and 72.

There is some disquiet in industry about the clause. The chartered Institute of Taxation, for example, has pointed out that the clause contradicts clause 15, which we debated earlier in respect of air passenger duty. Clause 15 will relax some of the measures that apply to fiscal representatives of air passenger duty. However, the burdens that have been relaxed in clause 15 are being imposed on insurance company business. The Association of International Life Offices in correspondence with the Financial Secretary said that the provision is discriminatory, excessive and represents a barrier to the provision of insurance services in the United kingdom. It also said:

    "The proposed measures cannot be a reasonable and proportionate way of protecting the Exchequer,"

In other words, the clause is unreasonable and disproportionate.

The three amendments tabled by myself and my hon. Friends would mitigate some of the burden that the measure imposes on industry. Amendment No. 70 would add the requirement that the policy-holder was a United Kingdom resident when the policy was taken out. That would tackle the most difficult aspect of the clause the requirement that a non-UK life insurance company which sells a policy abroad to a non-UK resident is expected to report the occurrence of a chargeable event to the Inland Revenue in the United Kingdom if the policy-holder subsequently becomes a UK resident. How can the insurer be expected to know that? The amendment would impose the requirement only when a non-UK life insurance company sold the policy to someone who was a UK resident when the[Mr. Gibb] policy was taken out rather than when the policy matures and a chargeable event occurs.

If the Government will not accept the amendment, how do they expect an overseas insurer to track the residence of all their policy-holders all over the world who may decide to retire to Bognor Regis? They are welcome to retire to Bognor Regis because it is a pleasant place to which to retire, but it would be difficult for a Tokyo life insurance company in Tokyo to track all the non-residents to whom they sell policies and who live all over the world. The provision is unenforceable and, therefore, bad law.

Amendment No. 71 would replace the words "fixed place of residence" in new section 552A(7)(a) with the words "fixed place of business". We tabled the amendment because there is no concept in English law of "fixed place of residence". It is likely that the tax representative will be someone in the United Kingdom who has a business in the United Kingdom. It is unlikely that my mother would be asked to be the representative of an overseas life insurance company.

Dr. Lewis Moonie (Kirkcaldy): that is a relief.

Mr. Gibb: We shall come to that in a minute. However, it is more likely that a business person in the United Kingdom would be asked to be the representative. So why cannot the phrase, "place of business" be used with the accompanying definitions that have been established in case law and practice?

If the Government cannot accept the amendment, will the Minister answer the following questions, which were also raised by the Law Society? First, what does "fixed place of residence" mean? It is a brand new phrase in English law. Secondly, why is a new form of words being employed when perfectly acceptable phrases such as "fixed place of business" could be used instead? Thirdly, is the phrase employed elsewhere in United Kingdom legislation?

Amendment No. 72 would introduce an element of sense into the clause, which in new section 552A(9(g) provides the Inland Revenue with the power to make regulations more regulations to appoint someone as the tax representative of an overseas insurer. The Revenue could introduce regulations and pick someone from the street. Even you, Mr. Butterfill, could be appointed to be the representative of the Timbuktu life insurance company. It would be sensible to change the wording so that the representative, at the very least, is able to consent to the appointment. Would it not be better if that person had some business connection with the overseas insurer? That should be clear in primary legislation and not left to the Inland Revenue to introduce in secondary legislation.

I hope that the Government will accept not only amendment No. 72, but amendments Nos. 70 and 71.

Mr. David Heathcoat-Amory (Wells): In addition to my hon. Friends detailed points about the practicality of the clause, I have a more general question about its compatibility with article 59 of the treaty of Rome. I raised this matter in a point of order last week on the grounds that it would be wrong for the Committee to proceed with a clause in the knowledge that it was unenforceable and possibly unlawful. If there is a conflict with the treaty of Rome, which is, of course, superior to any national law, the matter will be subject to judicial review. It would not be right for the Committee to collude in legislation knowing that the conflict exists and that a counsel's opinion has concluded that it would fall and be unenforceable.

Article 59 provides for fundamental freedoms, including the freedom to provide cross-border services. It prohibits direct and indirect discrimination on grounds of nationality and extends to measures that may not be obviously discriminatory but which result in an unnecessary burden or restriction on the cross-border provision of services. The clause puts obligations on non-resident insurance companies but not on United Kingdom insurance companies. Those obligations are onerous and expensive. Foreign insurance companies will have to keep detailed records and report accordingly. My hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) drew attention to the practical difficulties that will arise if the clause is implemented.

Article 59 of the treaty of Rome has direct effect. It does not come into force just because UK legislation is in place and it does not require a member state to do something. It has direct applicability and gives rise to rights and obligations. Those affected by the legislation can appeal ultimately to the European Court of Justice on the grounds that their rights have been infringed. It is easy to see that a foreign insurance company will regard the clause as conflicting with the rights that it enjoys under treaty law, which ranks above primary legislation passed by this House or any other national Parliament.

The Paymaster General should respond to that serious concern. The amendment does not deal with the issue. All that the Government amendment does is to define better what a non-resident insurer is. It merely provides a different definition. Although I do not want to inhibit my hon. Friends from raising other detailed concerns, especially those relating to the terms of the amendment, I believe that my essential point requires an early response from the Paymaster General.



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