Clause 149 - Non-resident companies: assessment,

Finance Bill – in a Public Bill Committee at 4:30 pm on 20th May 2003.

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Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General 4:30 pm, 20th May 2003

I beg to move amendment No. 95, in

clause 149, page 89, line 15, at end insert—

'(3A) Where the UK representative of a non-resident company is a person separate from that company it shall be entitled—

(a) to be indemnified in respect of any liability that it discharges as mentioned in subsection (3)(a) above; and

(b) to retain, out of any sums otherwise due from it to the non-resident company, or received by it on behalf of the non-resident company, amounts sufficient for meeting any obligations or liabilities that he has under subsection (1) above or has discharged as mentioned in subsection (3)(a) above.

(3B) The obligations relating to the furnishing of information which are imposed by this section on the UK representative in a case where that representative is an independent agent shall not require that representative to do anything except so far as it is practicable for the representative to do so by acting to the best of his knowledge and belief after having taken all reasonable steps to obtain the necessary information.

(3C) Subsection (3B) above shall not have the effect of discharging the non-resident company from any obligation to furnish information in a case where that obligation has been discharged by its UK representative by virtue only of subsection (3B) above.'.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

With this it will be convenient to discuss amendment No. 96, in

clause 149, page 89, line 34, at end insert—

' ''independent agent'', in relation to a non-resident company, means any person who is the non-resident company's UK representative in respect of any agency from the non-resident company in which he was acting on the non-resident's behalf in an independent capacity; and a person shall not be regarded as acting in an independent capacity on behalf of a non-resident company unless, having regard to its legal, financial and commercial characteristics, the relationship between them is a relationship between persons carrying on independent businesses that deal with each other at arm's length;'.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

It is of great relief to find that I am not alone in finding some of the issues before us very complex, because it is clear that other Committee members do as well. The issues reward a certain amount of study, to say the least. There was a moment, shortly after we resumed, when I hoped that the Paymaster General would make very few remarks, because, at that point, we might have been able to prevail in the vote, but, unfortunately, she had to continue, and I dare say that that was not 100 miles from her mind at the time.

That said, we move to clause 149. As I mentioned earlier, clause 148 was dealt with in Committee of the whole House ably and cogently by my hon. Friend the Member for Arundel and South Downs. Clause 149(1) will make the UK representative of a non-resident company that is trading in the UK through a permanent establishment—that is the UK representative—liable for non-resident companies corporation tax. When the UK representative is a separate person—that is an agent rather than a branch of the company—it is appropriate that he should have right of recovery or retention in respect of the corporation tax liability. Subsection 3A in amendment No. 95 would address that point.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

In the second line of proposed subsection (3A), the word ''it'' appears. To which entity does ''it'' apply?

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I am glad that the hon. Gentleman is so avidly following the cogency of my arguments. In that context, ''it'' refers to the UK representative of a non-resident company.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

Indeed, the hon. Gentleman is right. We have tried to follow the way that the rest of the Bill is drafted. The wording is clear, given that the clause deals with that aspect and is so titled. I hope that that clarification helps. I do not believe that that discloses a flaw because I believe the amendment will be interpreted correctly by those familiar with such provisions in the professional world.

On amendment No. 95, it is worth comparing schedule 23 to the Finance Act 1995, in which obligations are imposed on UK representatives, although the right of recovery in that case is limited to independent agents of the non-resident company. New subsections (3B) and (3C), which are also contained in amendment No. 95, restore provisions of the existing law—namely schedule 23 paragraphs 4(1), and 4(2)(a) of the 1995 Act.

Frankly, I think that amendment No. 96 speaks for itself. My very aged legal training reminds me that the applicable phrase is res ipsa loquitur, and the definition of ''independent agent'' is clearly set out. It adds clarification to the clause and its context in the Bill, and I hope that it will find favour with the Paymaster General, who will consider it a helpful suggestion.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The amendments would introduce indemnities and protections for independent agents who are the tax representatives of non-resident companies. As the amendments replicate the existing provisions of schedule 23 to the Finance Act 1995, I assume that they are prompted by the fact that previously an independent agent could be a tax representative, so an indemnity was desirable and included in the legislation. However, the clause provides that tax representatives for non-resident companies are now their permanent establishments, so independent agents who are prevented from being the permanent establishments of non-resident companies by clause 147(3) cannot be the tax representatives of non-resident companies. Therefore, the amendments are unnecessary.

Independent agents may continue to be the tax representatives of persons other than non-resident companies. They will, however, continue to enjoy the equivalent protections proposed by the amendment, which can be found in schedule 23 to the Finance Act 1995.

I hope that the hon. Gentleman will accept that his probing amendment demonstrates that the coverage is there, the indemnity is not necessary and the permanent establishment requirement for the non-resident company is met. I ask him to seek to withdraw the amendment, but if he feels unable to do so and puts it to a vote, I shall ask my hon. Friends to oppose it.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I am grateful to the Paymaster General for that succinct and clear explanation. She rightly identified, as I believe I had done, the replication of existing law.

The essence of the clarification is the interaction between this clause and clause 147, which has just been agreed to. Therefore, because of the definitional change, the question whether an unbroken chain of indemnification is required is no longer relevant. I accept the Paymaster General's helpful explanation and am glad that it is on the record. I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 149 ordered to stand part of the Bill.