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Mr. Letwin: It seems as long as I have been alive since we started making representations about the matter. Hon. Members present will remember that the initial proposals by the Government followed a consultation paper in which two options were put forward, one of which was onshore pooling. From that moment to this, we have argued that onshore pooling was an appropriate response. I can only say with heartfelt thanks that the Paymaster General and her colleagues have now given us a system of onshore pooling. We could all have been spared a lot of time and bother had that been done in the first instance.

This is very good news for British industry, for parliamentary democracy and for those who are contemplating establishing headquarters of multinational companies in the UK. Indeed, I will go so far as to say that I think the system of onshore pooling is superior in principle to the system of mixer companies, which has informally and quasi-formally operated to date. It is very good news. Indeed, it overwhelms the points that I am about to make, although they are also important. I hope that the Paymaster General will take them in the spirit in which they are intended--not as party politics, but as a recommendation for serious action over the next year.

If I can be forgiven a Dickensian allusion, the drafting of these particular amendments, which I recognise has been done in an almighty rush given the complexity of the subject matter, is worthy of the Circumlocution Office and may on reflection engender a certain amount of Jarndyce v. Jarndyce legal action. I hope that the Paymaster General will allow the next few months to be taken up in part by a review of those provisions to see whether a certain element of the spirit of the tax rewrite might not enter some of them, and whether they might not be brought back, not substantively altered necessarily--except in relation to a point that I shall come to--but altered in the drafting, so that there is some hope of people who have to operate the system in future years roughly understanding them.

Many hours spent going through the provisions in the past few days with expert help have convinced me that it is almost impossible to understand quite large sections. One or two of the most distinguished accountants in Britain are unable to determine the precise meaning of some of the paragraphs. Perhaps the parliamentary counsel who wrote them is unable to determine their meaning. In any case, I am sure that they could be improved upon with the lapse of time.

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We are grateful for the offer that the Paymaster General makes to produce a kind of guide for the uninformed in due course. I hope that that guide, which will have the benefit again of a much greater amount of time than the notes on clauses have had, will benefit from a little application of Fowler's plain English--not just plain English, but conceptual clarity.

I do not mean to be abrasive about the people who had the laborious task of drafting the notes on clauses, at what must have been astonishingly high speed. The notes are voluminous, but I must say that they are an extraordinary example of the art form. They make issues that were already complex obscure, and in some cases, issues that were already obscure incomprehensible. In some cases, it was only by returning to the clauses themselves that I could make out what was going on. The problem is remediable. There are plenty of people in the Treasury and at the Paymaster General's disposal who know how to do such things, given a few more weeks. I hope that time will be taken and that when the guide is produced, it will be comprehensible. So far, we are probably ad idem on the matter on both sides of the House.

7.30 pm

I shall deal with one grave matter of substance, but, before that with one comparatively minor matter. First, I must declare an interest. I have never been able to work out what it was, but I am sure that I do have an interest in some way, and it would be remiss of me not to declare it.

The Paymaster General said--and she was right--that the preponderance of the relevant other jurisdictions have tax rates that fall within the 45 per cent. limit. However, the current drafting of the amendments will, rightly, also capture withholding tax. The hon. Lady will discover, or she may already know, that in relation to, for example, subsidiaries held in Tokyo or in the state of New York, the composite effect of underlying tax and withholding tax rates will exceed 45 per cent.--not by very much, but by a little. That is why, I think, Mr. Cussons was arguing for a slightly higher rate. I believe that 48 per cent., for example, would capture almost all the effects to which I am referring, and certainly 50 per cent. would.

I do not want to stress that point unduly. Throughout the debate, I have never sought to use hyperbole where there are serious arguments and serious issues at stake. The old system that was introduced by the previous version of the Bill would have destroyed Britain as a location for multinational headquarters. The difference between 48 and 45 per cent. as a cap on onshore pooling will not destroy--I repeat, will not destroy--Britain as a headquarters for multinationals. It is, however, a minor irritant and I hope that the Paymaster General will reflect on that. There is time enough between now and next March or April to revise the limit to 48 per cent. That would be helpful, without much cost to the Treasury.

My major point relates to a matter which the Paymaster General acknowledged, to a degree, but I am not sure whether she has yet, or even that we have yet, fully grasped the scale of the problem. I refer not to new companies that are considering locating their headquarters in the UK, but to multinational companies that are already headquartered in the UK.

Those multinationals are largely shackled by the provisions that ensure that there will be a significant crystallisation of capital gains, should they seek to leave

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the UK. It has never been our argument that any change of double tax relief will send packing companies that are already headquartered in the UK, for that very reason--they are shackled by the provisions of capital gains realisation.

I am not saying that the effects that I am about to describe will send companies packing, but those effects may cost companies currently headquartered in the UK very large sums of money. That is the worry. Currently headquartered in the UK are multinational companies which, for tax-mixing purposes or for other purposes, or both, have been structured around intermediate holding companies, very often Dutch BVs, but in some cases other kinds of mixer companies. They have indirect subsidiaries--subsidiaries of subsidiaries--often in countries such as Japan and the United States.

The great bulk of the most important subsidiaries of multinationals headquartered in the UK, both originally UK-based and immigrants to the UK, have holdings through intermediates and sub-subsidiaries in the US and Canada. For various cultural and business reasons, our major area of outward investment has been north America. Under the provisions for onshore pooling, in order to benefit fully from the mixing or pooling--in order to get the unrelieved portion dealt with and to be able to use it--those companies will have to restructure their activities in such a way as to bring the current sub-subsidiaries and sub-sub-subsidiaries under the direct ownership of a UK-based company. That is the point of onshore pooling. We have no objection to that. There are restructuring costs associated with that, but I do not dwell on them--I suspect that, in the context of those companies, those costs will not be major.

However, the UK is not alone in having rules that crystallise capital gains upon restructuring. Other countries do, too. Some of the jurisdictions in the US have very great penalties on restructuring under certain circumstances. The Paymaster General is helpfully nodding, so the subject has evidently been aired inside the Treasury. I have had the opportunity in the past few days to discuss the matter with some distinguished auditors and also with some of the most important company treasurers in multinationals headquartered in the UK, which have not just substantial but enormous sub-subsidiaries and sub-sub-subsidiaries in north America.

I can assure the Paymaster General that a proper investigation of the matter will in due course reveal that the possible losses to multinationals headquartered in the UK associated with the transitional restructuring, so to speak, required to get the benefit of the onshore pooling may be enormous.

Bizarrely, that takes us back to a slightly sterile debate that we had right at the beginning, long before I at least, and perhaps even Ministers, properly understood what we were debating. That was the sterile debate about how much the Treasury would or would not raise by moving from mixing to no mixing. It was a sterile debate then as, in fact, the Treasury would not raise anything because sooner or later companies would not come to the UK. The long-term effect of the old proposals would have been that no revenue was raised and no multinationals were headquartered in this country.

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Now there is the question not of new companies coming, but of existing companies that are shackled in the UK. There is the possibility not of the Treasury doing too well, as it will not gain by the restructuring, but of the US Treasury gaining from the provisions. I know that throughout the proceedings in Committee and on Report, the Paymaster General has been generous and I do not doubt her generous instincts, but I suspect that they do not stretch to trying to make the US Treasury richer at the expense of UK-headquartered multinationals.

A brief inspection of The Economist this week will show that the US Treasury is rich beyond the wildest dreams of man. It is getting to the point where presidential candidates vie with one another to explain to US taxpayers how much tax relief they will undertake. We do not need to shed tears about the US Treasury, and we do not need to make it any richer at the expense of multinationals headquartered in the UK.

The practical question arises: how serious is the problem? The honest answer is that I do not know, and there is no one else who knows, as we have had only a few days to study the amendments. It will take time for accountants and treasurers in those large companies to get to grips with what will be required and to work out in detail what the costs will be.

What are the practical steps that can be taken if it transpires that the problem is serious, as I suspect it may be? I think that I can suggest a course of action that may be acceptable to the Paymaster General and which she would have an opportunity to put on the record today. We could then rest easy, broadly, and, in the spirit of amity, claim joint victory over the forces of evil. I do not suggest in any way that that would be a victory over the Government--no, no, far be it from me.

I suggest that over the next few months, companies be given the opportunity to calculate the tax costs arising in other jurisdictions; that some consultative process be established so that they can bring to the attention of the UK Treasury on a confidential basis the broad effects; and that the Paymaster General and her colleagues should consider those and judge whether the effects are serious. If they are, the Paymaster General or her successor should bring forward in next year's Finance Bill--that will be just in time--transitional amending provisions to provide more time or to make such other changes as are necessary to allow multinational companies currently headquartered here not to suffer the effects that we are discussing, or not to suffer them too dramatically.

I say "just in time" because, as the Paymaster General rightly said, the provisions will come into force next March. Unless my colleagues or successors are peculiarly inadvertent, next year's Finance Bill will not have been taken through the House and passed into law by March.

If the hon. Lady were now to announce that she is at least willing to go through some such process, and to agree that if it transpires that there is modification required she will bring forward in next year's Finance Bill retrospective legislation to allow for that, companies could proceed in the next few months in the knowledge that if they can show that there is a real problem, action will be taken retrospectively to allow them to engage in restructuring at a pace and in a way which minimises that problem.


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