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Standing Committee A
Thursday 13 May 2004
(Morning)
[Sir John Butterfill in the Chair]
(except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and
282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39)
9.30 am
Clause 47 ordered to stand part of the Bill.
Schedule 7
Insurance companies etc
The Financial Secretary to the Treasury (Ruth Kelly): I beg to move amendment No. 86, in
schedule 7, page 281, line 42, after first '14' insert
', 17, 22, 31 or 38'.
The Chairman: With this it will be convenient to discuss Government amendments Nos. 87 and 88.
Ruth Kelly: First, let me say what a pleasure it is to serve under your chairmanship, Sir John. I look forward to your guidance.
Amendments Nos. 86 and 87 extend the scope of a relieving provision that we have included in the Bill. Last year, we introduced a package of anti-avoidance rules to prevent life insurance companies from exploiting the system when transferring their business to another company, usually in the same group. One of those rules was designed to prevent companies from leaving assets representing untaxed profits behind and then extracting them in a tax-free way when they ceased to be an insurance company. However, the provision went too far, and it has been pointed out that it could inhibit the restructuring of life companies for good commercial reasons if companies leave behind assets to meet liabilities to policyholders whom they are also leaving behind.
The Bill therefore allows liabilities to be set off against assets, and it describes the type of liabilities that count for that purpose. However, it now turns out that other liabilities may also be left behind.
Mr. Quentin Davies (Grantham and Stamford) (Con): On a point of order, Sir John. I mean no discourtesy to the Financial Secretary, and I hope that she will forgive me, but I can only just hear what she is saying, and I am certain that people further away cannot hear her. It is important that we are clear about what she is trying to tell us, and I would be most grateful if she could raise the volume just a little.
Ruth Kelly: I will be delighted to speak at greater volume.
It now turns out that other liabilities may also be left behind. Amendment No. 86 therefore adds additional liabilities to the list.
Amendment No. 87 ensures that another related provision in the Bill works properly. The provision was designed to prevent companies from exploiting the relaxation of the retained assets rule, but it could work harshly where a company's genuine attempts to
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estimate its liabilities to policyholders turned out to be overcautious. As long as the retained assets that are not needed to pay claims also end up with policyholders, no additional charge to tax will arise.
Amendment No. 88 makes some minor technical changes. It adds a few more examples of life assurance tax provisions where it has become desirable to clarify what is meant by something being referable to a particular category of life assurance business. The amendment makes it clear that referability is based on the rules in section 432A of the Income and Corporation Taxes Act 1988. Those are also the rules for the provisions that were originally included in paragraph 9 of schedule 7. The additional provisions were, however, accidentally left out. I therefore commend the amendments to the Committee.
Mr. Howard Flight (Arundel and South Downs) (Con): I, too, welcome you to the Chair, Sir John. We are pleased that the Government have introduced the amendments to deal with some relatively minor outstanding issues that needed to be dealt with. The industry is broadly content with the arrangements in clause 47 and schedule 7, and there is nothing to criticise.
Amendment agreed to.
Amendments made: No. 87, in
schedule 7, page 282, line 32, at end insert—
'(7) Where an amount is shown as post-transfer reduction liabilities in the transferor's accounts for any accounting period beginning after the transfer, this section applies as if the amount of the retained liabilities at the end of that accounting period (and the beginning of the next) were increased by the amount so shown.
(8) In subsection (7) above ''post-transfer reduction liabilities'' means liabilities of the transferor to make payments to relevant persons which, in accordance with the terms of the insurance business transfer scheme, have arisen in consequence of a reduction in the amount of the retained liabilities at any time after the transfer.
(9) In subsection (8) above ''relevant persons'' means—
(a) if the transferor's life assurance business immediately before the transfer was mutual business, persons who were policy holders or annuitants, or members of the transferor, at that time, and
(b) in any other case, persons who were policy holders or annuitants at that time.''.'.
No. 88, in
schedule 7, page 285, line 13, at end insert—
'(1A) In the following provisions of the Finance Act 1989 (c.26) (which relate to the policy holders' share of profits)—
(a) section 88(3A)(a),
(b) the words within quotation marks in the portion of section 88(3B) preceding paragraph (a),
(c) the portion of section 89(1B) preceding paragraph (a), and
(d) section 89(2)(b),
after ''referable'' insert ''(in accordance with section 432A of the Taxes Act 1988)''; and, in consequence of the amendment made by paragraph (b), in section 88(3B), for ''referable to that business'' substitute ''so referable''.'.—[Ruth Kelly.]
Schedule 7, as amended, agreed to.
Clause 48
Loan relationships: miscellaneous amendments
Question proposed, That the clause stand part of the Bill.
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Mr. Flight: This, which introduces schedule 8, and the next few clauses are what I would describe as accountants' territory. Some 35 years ago, I could not face training as an accountant and went to business school instead. Accountants are very dry.
The clause introduces amendments to the loan relationship rules, which we shall come to when we consider schedule 8. Three main areas are covered. The first is a new rule that provides for an exit charge when loan relationships assigned between connected parties are taken out of the UK tax net. I shall comment on our concerns that the arrangements proposed will not work in the UK following the de Lasteyrie ruling.
Secondly, there are amendments to the late interest rules. They are intended to prevent companies in certain circumstances from claiming an accruals tax deduction for interest not paid within the 12-month period. Here we have concerns that the Government have not fully addressed some of the underlying problems. Thirdly, there are amendments to the bad debt relief rules that clarify the position of the parties in various stages of insolvency proceedings. In the main, those arrangements will work satisfactorily.
Question put and agreed to.
Clause 48 ordered to stand part of the Bill.
Schedule 8
Loan relationships: miscellaneous amendments
Mr. Flight: I beg to move amendment No. 53, in
schedule 8, page 285, line 38, leave out 'from' and insert 'from—
(a)'.
The Chairman: With this it will be convenient to discuss the following amendments: No. 54, in
No. 55, in
schedule 8, page 289, line 4, at end add—
'8 (1) Section 87 of the Finance Act 1996 is amended as follows.
(2) In subsection (5A) (cases where a partnership is a creditor or debtor in a loan relationship) in the closing words, for the words from ''a limited partnership'' to the end of the subsection, substitute ''a CIS limited partnership''.
(3) After subsection (5A), insert:—
''(5AA) In this section—
''CIS limited partnership'' means a limited partnership
(a) which is a collective investment scheme, or
(b) which would be a collective investment scheme if it were not a body corporate.
''collective investment scheme'' means ''a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000''.
(4) These amendments have effect for accounting periods ending on or after 13th December 2003.
9 (1) Section 87A of that Act is amended as follows:
(2) In subsection (3) (partnerships involving companies) in the closing words, for the words ''a limited partnership'' to the end of the subsection, substitute ''a CIS limited partnership''.
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(3) After subsection (3), insert:—
''(4) In this section—
''CIS limited partnership'' means a limited partnership
(a) which is a collective investment scheme, or
(b) which would be a collective investment scheme if it were not a body corporate.
''collective investment scheme'' means a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000''.
(4) These amendments have effect for accounting periods ending on or after 13th December 2003.
Interpretation of references to major interests
10 (1) Paragraph 20 of Schedule 9 to that Act is amended as follows:
(2) In subparagraph (5) (partnerships involving companies) in the closing words, for the words from ''a limited partnership'' to the end of the subsection, substitute ''a CIS limited partnership''.
(3) In subparagraph (6) in the closing words, for the words from ''a limited partnership'' to the end of the subsection, substitute ''a CIS limited partnership''.
(4) After subparagraph (6), insert—
''(6A) In this paragraph—
''CIS limited partnership'' means a limited partnership
(a) which is a collective investment scheme, or
(b) which would be a collective investment scheme if it were not a body corporate.
''collective investment scheme'' means a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000''.
(5) These amendments have effect for accounting periods ending on or after 13th December 2003.'.
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