Schedule 29 - Gains and losses of a company from intangible fixed assets

Part of Finance Bill – in a Public Bill Committee at 10:15 am on 13th June 2002.

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Photo of Joe Benton Joe Benton Labour, Bootle 10:15 am, 13th June 2002

I have deliberately permitted a fairly wide-ranging debate on the amendments because the issues are complex and interrelated. Also, the Committee did not have a clause stand part debate on clause 83, so it seemed right for the Minister to have the opportunity to range slightly wider in putting his case than the amendments would otherwise have allowed. That being so, I shall tell the Committee now that, although I am prepared to allow a more wide-ranging debate where matters are interrelated, I shall take that into account when considering whether to allow a stand part debate.

Mr. Flight: I beg to move amendment No. 184, in page 405, line 44, at end insert—

'71A (1) This paragraph makes provision for the application of this Schedule where a controlling interest is acquired in a company (the first company) by another company (the second company), such that the first company becomes a member of a group of companies of which the second company—

(a) was already a member; or

(b) is or becomes the principal company.

(2) Immediately before the time when the second company acquires a controlling interest in the first company, where the first company owns intangible fixed assets, the first company shall immediately before that time be deemed to have disposed of those intangible fixed assets for a sum equal to such amount as shall result in neither a gain nor loss for capital gains tax purposes nor a credit or debit for the purposes of this Schedule as the case may be.

(3) Immediately after the time when the second company acquires a controlling interest in the first company, such part of the expenditure (the apportioned expenditure) by the second company on the acquisition of a controlling interest in the first company shall be treated as expenditure on acquiring the intangible fixed assets of the first company, as shall be just and reasonable. The tax written down value of the intangible fixed assets of the first company shall be deemed to be equal to the expenditure so apportioned.

(4) The third person is a company or other person from whom the second company acquired the controlling interest in the first company. Where this paragraph applies—

(a) the third person shall be deemed to have disposed of an intangible fixed asset for a sum equal to the expenditure deemed to have been incurred by the second company pursuant to sub-paragraph (3) above;

(b) the disposal by the third person of the intangible fixed asset pursuant to this sub-paragraph shall be deemed to be a separate asset from the shares in the first company; and

(c) any chargeable gain that accrues to the third person as a result of the disposal of the shares in the first company shall be treated for all the purposes of the Tax Acts as reduced by an amount equal to the expenditure deemed to have been incurred by the second company pursuant to sub-paragraph (3) above (and an allowable loss will be deemed to be increased by a like amount, as the case may be).

(5) The intangible fixed asset deemed to have been disposed of by the third person for the purposes of sub-paragraph (4) above shall be treated as having been created or acquired (as the case may be) at the time that the intangible fixed asset owned by the first company was acquired or created by the first company.

(6) In sub-paragraph (2), (3) and (5) above, references to the first company shall include references to one or more companies that were not in the same group as the second company before its acquisition of a controlling interest in the first company but as a result of that acquisition are in the same group as the second company after the acquisition.

(7) For the purposes of this paragraph, the second company acquires a controlling interest in the first company if the two companies are not in the same group and there is an acquisition by the second company of shares in the first company such that those two companies are in the same group immediately after the acquisition.

(8) This paragraph shall apply only if an election in writing is made jointly by the second company and the third person, such election to be made within the period commencing with the acquisition of the controlling interest in the first company and ending two years later.'.

The amendment picks up the issue that my hon. Friend the Member for Fareham has already raised. It is aimed at resolving the anomaly where the acquisition of assets results in a materially better tax result for the acquirer than if they had acquired the shares of the company carrying on the trade. Under the current provisions, where a company acquires a business from another person, the goodwill becomes

purchased goodwill, as defined under generally accepted UK accounting practice, and hence may be tax depreciated, but if a company acquires the shares of a company carrying on a trade, as the Minister commented, the goodwill may not be amortised.

Clause 44 contains measures that operate in the entirely opposite direction, which make it much more attractive for vendors to dispose of shares than to dispose of assets. My hon. Friend the Member for Fareham referred to tension, but I see potentially more than that. The proposals may encourage complex schemes for deals that would put money into clever corporate financiers' pockets, and we do not want to create such complexity. I was unhappy to hear the Minister say earlier that the measure was intended to apply only to assets, not to shares. I take that to be the Government's position, and if their position is unchangeable, measures that are otherwise positive may bring with them many problems.