As the hon. Member for Fareham mentioned during our discussion on the previous set of amendments and as the hon. Member for Arundel and South Downs explained, there is a perceived tension in the Bill between the intangible assets reform and provisions in clause 43 on the exemption for substantial shareholdings. The amendment addresses that perceived tension with a provision that appears to be based on section 338 of the United States internal revenue code. This is not a new issue. We raised it during the consultation process, we considered it carefully when drafting the Bill and we shall keep the matter under review, as I explained to the right hon. Member for Fylde.
Both the intangibles and the substantial shareholdings reforms were developed following extensive consultation with business. In each case, the final outcome has been welcomed by business. Both reforms address what are, by anyone's standards, long-standing problems in the corporate tax system, which needed to be overhauled. At the asset tier, the new intangibles regime modernises the corporation tax base and removes the distortion against acquiring intangible assets. At the shareholder tier, the substantial shareholdings exemption removes a major obstacle to commercial restructuring.
We have included in schedule 29 a measure that will extend the intangibles roll-over relief to cases where a company reinvests by acquiring a controlling interest in another company and that newly acquired company has intangible assets within the regime. I hope that the Committee appreciates that this innovative rule will provide for a greater degree of neutrality between acquisitions in share and asset form, and that it will afford greater flexibility to companies as the number of assets within the new regime increases.
All in all, the reforms provide a sensible framework at shareholder and asset tiers that will enhance the competitiveness and flexibility of the UK corporate tax system. However, we understand the points that have been made about it. As I said earlier, we shall keep the matter under review. As we monitor the
impact of the new regime in its first few years of operation, we shall consider the case for a further measure along the lines of the United States section 338 model should the evidence warrant it. However, I warn those hon. Members who may wish to press the point now or on Report that a range of factors will need to be taken into account.
The potential cost would need to be considered carefully. An elective provision of this sort, which would generally be used by companies only when there was an overall tax benefit to them, would be likely to carry a significant Exchequer cost. The amendment would increase that cost, as it appears to bring existing intangible assets within the new regime while they remain in the hands of the company that held them prior to commencement. Under the schedule, those assets are outside the regime until they actually change hands.
It is by no means clear that the proposed new paragraph would work satisfactorily in practice. I shall not go into the technical detail here; it will be more appropriate to do it in consultation with experts. However, it is a technically complex area and legislation along such lines would need to be developed in consultation with business to ensure that it achieved the objectives that we might wish for potential provisions of that nature. The amendment would also allow intangible assets to be treated as bought and sold under the election, but no other assets. It is hard to see why that should be so. The US equivalent rule applies to all assets, not only intangibles.
I assure Opposition Members that we will continue to keep the matter under review. We shall assess the impact of the reforms introduced in the Bill, and we shall consult business on future reforms to corporation tax. I would therefore encourage the hon. Member for Arundel and South Downs to withdraw the amendment.