Amendment No. 43 is consequential on amendment No. 42 and amendments Nos. 49 and 50 are related to amendment No. 42. Therefore, all these amendments may be discussed together.
SECTION 33.
Chairman
I move amendment No. 42:
In page 62, subsection (1), between lines 6 and 7, to insert the following:
"(a) by the insertion after the proviso to paragraph (b) of subsection (2) of the following additional proviso to that paragraph:
‘Provided also that in computing profits for the purposes of the foregoing provisions of this paragraph, subsection (1A) of section 13 shall apply as if the rate per cent. of capital gains tax specified in subsection (3) of section 3 of the Capital Gains Tax Act, 1975, were the rate per cent. of corporation tax specified in paragraph (b) of subsection (1) of section 1.'.".
I will deal with amendments Nos. 42, 43, 49 and 50 together because they deal with different aspects of the same issue. Following the Finance Act, 1993, new tax regimes were introduced for various savings vehicles. Life assurance funds are taxed at 27 per cent; special investment policies operated by insurance companies are taxed at 10 per cent and undertakings for collective investment, which are companies, are taxed at 27 per cent.
The mechanism by which capital gains arising into any of these vehicles are taxed is the same as that for companies generally. The law requires that companies are in general charged to corporation tax instead of capital gains tax. Capital gains tax liability which would otherwise be due by a company is converted into an amount of profits which, if charged to corporation tax, would result in the same amount of tax being payable.
The formula of rates is as follows. A capital gain of £100 which would otherwise give rise to a capital gains tax liability of £40 is converted into £105 corporation tax profits. These profits, when taxed at 38 per cent, give a corporation tax liability of £40. In the case of savings vehicles mentioned above, their tax liability is arrived at by taxing the pro fits derived from that formula at the 27 per cent or 10 per cent rate as appropriate.
The formula worked correctly when, before 1 April 1995, the corporation tax rate was 40 per cent. However, when in the Finance Act, 1995, the corporation tax rate became 38 per cent, the formula resulted in effective tax rates of 28.4 per cent and 10.5 per cent. This was unintentional. Accordingly, these amendments are technical ones designed to insure the re-establishment of the 27 per cent and 10 per cent rates which will take effect from 1 April 1995. These amendments are consequential technical ones restoring the post ante position.
Amendment agreed to.
I move amendment No. 43:
In page 63, lines 14 and 15, to delete subsection (2) and substitute the following:
"(2) This section shall apply and have effect——
(a) as respects paragraph (a) of subsection (1), for accounting periods ending on or after the 1st day of April, 1995, and
(b) as respects paragraphs (b) and (c) of subsection (1), in relation to a disposal on or after the 28th day of March, 1996.
Amendment agreed to.
Question proposed: "That section 33, as amended, stand part of the Bill."
I may have to introduce another amendment which I am not yet in a position to bring before the committee. In compliance with Standing Orders, I wish to give notice that I am considering putting down Report Stage amendments to this section which will, if necessary, deal with changes in the tax regime for undertakings of collective investments.
Question put and agreed to.
Section 34 agreed to.