I do not think that I need to explain the purpose of the clause. Both the Opposition and the Government amendments would extend the provision to a limited number of assets in areas that qualify for capital allowances but are outside the scope defined in the clause. To that extent I recognise clearly the constructive spirit in which the hon. Gentleman tabled the amendment. However, as I will explain briefly, both amendments have collateral consequences that are wider than I think he intended. For that reason I encourage him to consider accepting the Government amendments rather than press the formula in his amendments.

By removing the word ''qualifying'' under amendment No. 159, the scope of the clause would be widened to the extent where all assets eligible for capital allowances that are transferred as a result of a merger would be free of a capital allowances balancing charge. The relief would, in particular, be extended to assets to which the mergers directive may not apply, so it would be possible for companies to avoid a charge where one would be appropriate, for example, where the asset was no longer within the scope of UK tax after the merger. That could happen where the merged SE was in another member state and the assets transferred were no longer used for the purposes of a business in the UK.

Article 4(1) of the mergers directive provides that tax neutrality is only to apply to those assets that remain effectively connected to a permanent establishment in the transferring country. Consequently, the Government wish to restrict the scope of the clause only to those assets that remain effectively connected with a UK branch or permanent establishment.

On the other hand, although Government amendments Nos. 144 and 145 deal with the same problem of limited areas outside the scope of the original clauses, they do so in a way that does not require the removal of the terms ''qualifying assets'', thus avoiding the problem that I have outlined. I hope that the hon. Gentleman will accept them.