Development – Tax break call for third world

The Treasury is being urged to grant special tax status to the partially privatised Commonwealth Development Corporation to compensate for banning it from banking offshore.

The tax perk would lift the threat of double taxation facing a body which plays a key role in financing investment throughout the third world.

The Commons’ International Development Committee recommended the move, ‘to place the CDC on a level playing field with other investment institutions able to bank offshore’. MPs demanded the tax break in comments on a Bill transforming the CDC into a public/private partnership that would allow the government access to private-sector finance.

The Bill has passed the Lords already, and is poised to proceed through the Commons.

The CDC has been able to take risks unacceptable to the private sector by investing in less secure businesses operating in politically or economically unstable environments.

But it could yet be crippled by a declaration from overseas development secretary Clare Short that it would be ‘intolerable’ for the corporation to follow the example of other investment companies that have reduced their tax liability by banking offshore.

A report from the committee warned: ‘CDC will therefore be at a cost disadvantage in comparison to other investment institutions – the outcome of a political decision for which CDC will presumably have to be compensated.’

CDC would be taxed on its own profits and shareholders would face further taxation when realising the same profits by selling shares.

After exploring the options, including cash refunds and restructuring as an investment trust, the committee recommended creating ‘a special tax status for CDC which avoids the dilemma of double taxation and places CDC on a level playing field with other investment institutions which are able to bank offshore’.

But it added: ‘The provision for this special status should automatically expire on the sale of the government’s minority shareholding.’

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