Finance Bill — Double Taxation Relief — 3 May 2000

Clause 59 ordered to stand part of the Bill.

Question proposed , That the clause stand part of the Bill.

The measures contained in Schedule 30--

have been drawn up after extensive consultation with business.

Mixer companies have been in use for a considerable number of years. Multinational groups have structured their overseas interests accordingly. Relief for underlying tax, which mixers facilitate, of around £4 billion a year is allowed each year. Both mixer companies and onshore pooling present a number of interesting and complex issues of both an economic and a technical nature. It will be important for the future to strike the right balance between them.

the likely effect on tax revenues

a further blow to UK-based multinationals . . . The Government should withdraw this paragraph from the Finance Bill . . . and have a proper consultation prior to the Finance Bill 2001. The consultation in 1999 bears no relation to the UK system as amended by this paragraph, and is therefore worthless in this context.

This clause introduces Schedule 30 containing a draft of radical and unheralded changes to the existing law on Double Tax Relief, particularly in relation to restriction of relief involving mixer companies. The biggest problem which business has with the provision is their adverse effect on the international competitiveness of businesses located in the UK.

Companies of different sizes across the sectoral spectrum, whose business is vital to the success of the UK economy, have raised concerns about the adverse impact of the proposals.

Specific problems are discussed below but the overall effect of the adverse changes . . . has been to create a situation where a number of commentators, including companies which have contacted the CBI, are saying that the UK will now have one of the worst, if not the worst, double tax regimes amongst the G7 nations.

of the sweeping and fundamental changes to the double tax relief . . . system took the entire business community by surprise . . . these changes reduce the UK's competitiveness as a base for multinationals . . . The suddenness of the change and its fundamental nature is extremely disconcerting.

In the discussion paper dated March 1999, and in discussions with the Inland Revenue International Division--

the impression was given that offshore mixer companies were accepted and that, indeed, some form of onshore pooling was being considered. In the event, the proposals go in the opposite direction. This calls into questions the bona fides of the consultation process and the way in which the Revenue and the Treasury work together in relation to taxation policy decisions.

when we compare how we tax our multinationals and, in particular, the use of our controlled foreign company legislation, with the practice of our European partners--

we find that the Government's proposals are to bring us into line with the competitive practice of other countries.--[ Official Report , 17 April 2000; Vol. 348, c. 758.]

when we compare how we tax our multinationals . . . we find that the Government's proposals are to bring us into line with . . . competitive practice,

The ordinary credit system adopted by the UK and a number of other countries has the twin advantages of going some way towards achieving . . . CEN--

for the United Kingdom economy.

The use of mixer companies has made UK investors more or less indifferent to the high tax rates in countries in which they invest--

and we need to change that focus--

we need to change that focus to ensure that we receive--

the correct amount of tax.--[ Official Report , 17 April 2000; Vol. 348, c. 791.]

the correct amount of tax--

the correct amount of tax

the correct amount of tax.

the correct--

amount of tax,

the eccentricities of the UK's double tax relief system, which encourages UK groups to gain tax efficiencies by using offshore intermediate holding companies.

Intermediate mixer holding companies are appropriate even for these multinationals since low-taxed income may be generated within the intermediate mixer holding company itself for blending with the high-taxed overseas dividend income received. The low-taxed income can be created through establishing a tax efficient financing operation within the mixer company, which then on-lends its funds to other group companies by way of intra-group loans.

It is much easier to repatriate low tax dividends to the UK than ever before and this has made something of a mockery of the CFC regime. What does it matter being forced to repatriate low tax dividends if no additional UK tax is payable on them?

Those companies that are taking advantage of the famous "Dutch Mixer" are probably drinking at the last chance saloon. Legislation to seriously curtail the Dutch mixer could be on the statute books by 2000.

the effect of mixing is to allow a United Kingdom company to have relief for foreign tax which is paid at a rate above the United Kingdom tax rate.

can constitute a tax-driven distortion of the way in which groups would otherwise structure themselves for commercial reasons

can also encourage a group which has highly taxed income to divert investment to low tax countries, and vice versa . . .

present a number of interesting and complex issues of both an economic and a technical nature. It will be important for the future to strike the right balance . . .

unusual feature of the review is the extent to which members of the Inland Revenue's international division have discussed it in open forum.

As far as the policy is concerned, there clearly was a mischief in what were called "mixer companies", which allowed companies with tax bills overseas effectively to buy in low-taxed income to shelter their profits,

Whether it is the right way of doing it I think is more questionable. I think that this can be characterised as a sledgehammer.

The change in the behaviour is likely to be a reduced remittance of dividends to the UK--

I am concerned as to the effects on investment decisions and on location decisions and I am concerned about the way this policy has been brought through.

Question put, That the clause stand part of the Bill:--

The Committee divided: Ayes 254, Noes 123.

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