Mr. Prisk: I am glad that the Paymaster General has clarified her view because from her original statement it was unclear whether she accepted that there was a new tax nothing but that the benefit of the general proposals was that a different tax nothing was being lost, and that therefore there was a net balance. It is important to stress that because industry is working towards the reform of corporate taxes, and
Column Number: 146merely to move forward but then take two steps back, or perhaps to be fair, one step back—
Dawn Primarolo: It has been a good debate but the hon. Gentleman is being somewhat unfair and so is business. Earlier, we heard the argument that we should not introduce provisions piecemeal; now we hear that we should introduce piecemeal the provisions that business definitely wants and take them out of the review. The management expenses are specific to the transfer pricing as well as the other arrangements that recognise the pressure on companies. I have made it clear that the corporate tax review of capital expenditure is the correct place to take the matter forward. Detailed discussions are taking place, and I thought that business wanted that rather than a rushed patch now.
Mr. Prisk: I hope that we will not have any rushed patches at all. I suspect that we will have to agree to disagree in this area. The purpose of the amendment, as far as I was concerned, was to probe and to test the Paymaster General's exact view. I think that we have succeeded in doing that. I do not intend to press the matter to a vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mr. Prisk: A moment ago, we debated an amendment looking at a retrograde step that is part of the proposals; we turn now to their broader aspect. As I said earlier, we welcome the generality of what the clause represents. The clause, and the supporting clauses from 39 onwards, removes the requirement to be an investment company—in other words, one not involved in the trade—in order to claim the deduction from management expenses under section 75 of the Income and Corporation Taxes Act 1988.
It is fair to say that a number of difficulties have tended to arise when a company's activities are a mixture of trading and investment. That occurs most commonly in a group situation with holding companies that not only own subsidiary company's shares but carry on a trade at the same time. In larger groups, holding companies may well not carry on any—or any significant—trading activity, to avoid that problem. Sometimes no tax relief has been available to a mixed investment and trading company for any of the investment and management expenses, where the extent of the trading activities means that it is not an investment company for tax purposes. From talking to a number of those affected by the changes, and, indeed, from considering the responses to the Government's management expenses consultation, it is clear to me that, in most respects, the legislation before us reflects a successful consultation and a positive dialogue, subject to the specific difficulty that we just debated.
I also understand that the Association of British Insurers—to name but one example—is broadly content with the legislation of life assurance company-related management expenses. I think that comes a little further on; nevertheless it is an important part of the overall statement.
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I think that if there is one area that is questioned, it is that relating to unallowable purposes, which is also referred to in the Government's draft guidance for management expenses. I conclude by saying that it would be helpful for the Committee, and for those organisations affected by the legislation, if the Paymaster General clarified exactly what is meant by an unallowable purpose.
Dawn Primarolo: The hon. Gentleman has covered the clause fairly adequately in that, first, it extends the range of companies able to obtain the tax deduction for the expenses management. Secondly, it puts the time of the reduction in a clear and modern basis; and thirdly, it recasts the complex rules for similar deductions for life assurance companies into a free-standing logical code. There has been consultation on those matters, and it has been widely welcomed by business.
The only point on which the hon. Gentleman seeks further clarification is the unallowable purpose test. He says that it needs clarification, perhaps in relation to management and investments in subsidiaries, especially—perhaps this was in the submissions sent by the Chartered Institute of Taxation—with regard to overseas subsidiaries. The point is clarified in the explanatory notes and the draft guidance published on the Inland Revenue's website. It is not relevant to the application of the test that a subsidiary company whose shares are held by a company that is seeking management expenses relief is not within the corporation tax charge.
If the hon. Gentleman wants to raise any further issues once he has read the draft guidance published on the Inland Revenue's website, I will be more than happy to receive his representations. I can assure him that the concern that the unallowable purposes test is too restrictive is without foundation, which I hope is shown in the explanatory notes and the draft guidance. I accept that the hon. Gentleman may not have had time to consider these matters, but, given that the guidance is draft and we are receiving comments on it, I will be more than happy to receive his if he feels that the guidance does not adequately deal with his points.
Question put and agreed to.
Clause 38 ordered to stand part of the Bill.
Clauses 39 to 41 ordered to stand part of the Bill.
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