Clause 34 - Payments of excessive interest etc
Finance Bill
4:00 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I certainly do not want the hon. Gentleman to labour under any misunderstandings about the Government's approach to matching. We agree with him that the matching principle for exchange gains and losses should be preserved. To see that, he need look only at the Finance Act 2002, in which the Government strengthened the matching rules to allow more assets to be matched. We included in that Act paragraph 11A of schedule 9 to the Finance Act 1996 to ensure that transfer pricing and thin capitalisation considerations did not prevent matching from working. The matching arrangements that we are dealing with, and which his party introduced in 1993, are about interest-free loans between two companies in the same group. Our changes in 2002 preserved those arrangements, and nothing in the Bill or the transfer pricing proposals changes any of that.
The Inland Revenue has been asked about this issue repeatedly and has published guidance on its website. It has explained the position to the firms that have asked, and the position is clear. If the loan is interest-free, there is no change. If interest is charged on the loan at the arm's-length rate, there is no change. Only if for some reason interest is charged at an excessive rate might there be an issue. That was the case under the thin capitalisation rules, too. We are dealing with a clause that is taking out thin capitalisation and putting the same arrangements within transfer pricing.
I hope that, with all those assurances, the hon. Gentleman will see that the amendment is unnecessary, because the matter is dealt with to ensure that groups are still able to match.