Clause 16 - Open-ended investment companies
Finance Bill
6:30 pm
Mark Field (Shadow Minister, Treasury; Cities of London and Westminster, Conservative)
I beg to move amendment No. 13, in clause 16, page 14, line 39, at end insert—
'(4) In relation to an open-ended investment company mainly invested in interests or rights over land, the rate of corporation tax for the year 2005 and subsequent financial years may be determined under Regulations made under section 18 of this Act to be nil.'.
Chapter 3 relates to authorised investment funds. As the Committee knows, we discussed these matters in some detail on the Floor of the House, at least in relation to clause 18, which had several other aspects that cover the debates relevant to clause 16. I tabled the amendment because it deals with an area that was not discussed in such great detail.
Overall, the funds industry does not want to alter many of the clauses, but it would prefer that the proposed changes be made by primary legislation and not by statutory instrument. The Association of British Insurers has expressed several principled concerns in its representations to the Government. The ABI is concerned that the Government propose to extend significantly the power that allows them to alter critical areas of the taxation of life insurance companies by regulation rather than by primary legislation. It has expressed strong reservations about the proposals. As a general point of principle, the Conservative party accepts the ABI's view that it is inappropriate for changes to such a significant element of the tax regime for life insurance to be made simply by regulation. The worry is that the clause allows changes to be made without proper consultation or parliamentary scrutiny, and could result in badly thought through and unfair proposals becoming law. We strongly believe that significant changes to tax legislation should be made only by means of primary legislation.
The Government intend using their proposed regulation-making powers to address what they see as flaws within the current system. Again, the ABI accepts that the legislation needs to be reviewed. However, we believe that such a review should be part of a wider review of corporation tax reform in relation to the taxation of life insurance companies—we understand that that is scheduled for some time next year—rather than as a quick fix within the Bill. Without repeating the debate on schedule 2, there are also concerns that aspects of the Bill will have retrospective effect.
Amendment No. 13 addresses some of the issues that we discussed on the Floor of the House on 13 June. It should be noted that, despite several announcements by the Government on introducing tax legislation to give effect to real estate investment trusts, such legislation has not been introduced in this Finance Bill. That is due to problems involving the current method of taxation of overseas landlords, where rents paid to them are subject to a 22 per cent. withholding tax, except where the landlord has the prior agreement of the Inland Revenue. The concern is that REITs will, in effect, escape such a tax on paying distribution to an overseas landlord. However, many other countries have REITs and tax regimes for them. There is a genuine concern that the delay is causing the property fund industry to locate in countries other than the UK.
I am sure that the Minister will have thoughts on a solution. We have tried to highlight the problem that prevents such legislation being introduced following suitable consultation. The reason why the European Union has tried to impose a different regime is that the UK proposals are likely to be ruled illegal under EU law by the European Court of Justice. Our amendment enables one of the suggested solutions to be that tax is charged at nil in the REIT, with greater tax then due to arise on the investor in the REIT if it is so chargeable to tax.
Clause 16 on open-ended investment companies effectively transfers into statute the statutory instrument laid when OEICs could first be established under UK law. That should mean that OEICs will be taxed in the same manner as unit trusts: in other words, on income at 20 per cent., rather than in the manner applicable to other companies.
I hope that the Minister will be able to give some guidance on the Government's thoughts on clause 16. We could, I know, repeat much of the earlier debate, but many of the concerns that were set out on the Floor of the House on 13 June remain entirely relevant. There is grave concern within the insurance industry that much of the legislation in clauses 16 to 23 is being rushed through the House at a time when a little more sober reflection, given the timetabling of other amendments, would have made a certain amount of sense. I hope that the Economic Secretary has some thoughts on the matter.