Mr Richard Ottaway (Croydon South, Conservative)

The Paymaster General is right that considerable consultation has taken place; the industry has a fair idea of what is coming. She is also right that the matter caused some problems. She has been gracious in her apology for what happened, and I am happy to accept that apology. I leave it to the industry for its reaction.

To touch on new clause 16, any change involves a law of unintended consequences. In this case, it is quite serious when a limited liability partnership tries to issue eurobonds. LLP legislation was designed to modernise the legal framework within which major international partnerships and joint ventures operate. As the Paymaster General will be aware, such partnerships rely heavily on several different methods of raising capital. One method for a United Kingdom plc to raise capital is through the eurobond market, to which it has ready access without difficulty.

The Paymaster General will be aware that in proposed new section 59A(2)(c),

``references to a company do not include ... a limited liability partnership''.

Therefore, a limited liability partnership that tries to raise money on the eurobond market will not be competitive, as it will not qualify for the UK withholding tax exemption for interest payments on those bonds—legislation precludes that. Is that intended? Is it an oversight? Is it a matter of policy? If not, the problem could be easily remedied by an amendment on Report tomorrow, placing the words

``except for eurobonds in section 59A(2)''

in the preamble. It is absurd that a major UK PLC should be able to access the eurobond market but a substantial partnership should not be. I hope that the Paymaster General will take that point on board.

My second point relates to new clause 17 and new schedule 2. As the Paymaster General said, the proposal is designed to prevent such partnerships being used by property investors, perhaps along the lines of the real estate investment trusts that are widely and commonly used in the United States. However, new schedule 2 leaves it open to non-UK taxpayers and non-UK tax-exempt partnerships to enjoy the benefit of investment in real estate through a UK LLP. She will be aware that tax returns to partner level. If the partner is offshore, that partner is exempt.

It is odd that a UK partnership will be precluded by proposed new schedule 2 from enjoying the possible tax-exempt benefits, yet an offshore company operating through a UK limited liability partnership will be caught. Is it the Paymaster General's intention to give that advantage to offshore companies, rather than to UK companies? If that is not her intention—I fully accept that it is difficult to anticipate all such arguments—we will happily table an amendment to be debated tomorrow.

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