That an humble Address be presented to His Majesty, praying that the Double Taxation Relief (Air Transport Profits) (Greece) Order, 1951 be made in the form of the Draft laid before this House on 23rd January."—[Mr. Jay.]
§ Mr. Lionel Heald
On a point of order. May I ask your guidance, Mr. Speaker, on a matter of the Report on Supply? You have ruled that no discussion is allowed on this matter. I should like to ask for your guidance on this. Many hundreds of millions of pounds have been voted and no discussion has been permitted. I want to know whether that is in accordance with the usual procedure. I am advised that it is not so, and I would like to know why that is, and whether it is part of the Government's new policy.
§ Mr. Speaker
The hon. and learned Member has no business to make that sort of statement. Here are Standing Orders by which this is specifically laid down by this Parliament and other Parliaments, and what the hon. and learned Gentleman has said is no point of order at all.
§ 9.39 p.m.
§ The Financial Secretary to the Treasury (Mr. Douglas Jay)
I beg to move,hat an humble Address be presented to His Majesty, praying that, on the ratification by the President of the French Republic of the Convention set out in the Schedule to the Draft of an Order entitled the Double Taxation Relief (Taxes on Income) (France) Order, 1951, a copy of which was laid before this House on 23rd January, an Order may be made in the form of that Draft.I would like, briefly, to ask the House to approve the two Motions on the Order Paper in the name of my right hon. Friend the Chancellor of the Exchequer 1892 relating to two draft Double Taxation Orders with France and Greece. The more important of the two follows a recent Double Taxation Agreement with France, signed in December, and the other a more limited agreement with Greece concerning taxes on air transport profits.
§ Mr. Assheton (Blackburn, West)
On a point of order. Is it proper for the hon. Gentleman to discuss both orders together?
§ Mr. Speaker
The first one has been disposed of. We are taking the second one. If by chance the other one went through rather quickly—as it were, by mistake—that is not my fault, but the fault of the hon. and learned Gentleman the Member for Chertsey (Mr. Heald).
§ Mr. Jay
I understand we are discussing the second Motion relating to the agreement with France. That convention, the more important of the two, follows the Double Taxation Agreements concluded by the United Kingdom since 1945 with the United States and a number of other countries. It affects United Kingdom Income Tax, Surtax and Profits Tax, and the French Proportional Tax—part of their Income Tax—and the French Progressive Surtax on individuals, and also the Company Tax and Undistributed Profits Tax.
Certain classes of income derived from one country by residents in the other, under the agreement are exempt from tax altogether in the former country. Those are certain trading profits not arising from the existence of permanent establishments in the other country, shipping and air transport profits, and certain other forms of income. Government salaries and pensions, of course, are normally taxed by the paying Government only. In addition, by this agreement the rate of French tax on dividends paid by United Kingdom companies out of profits earned in France is to be reduced from 18 per cent. to 10 per cent. so long as the undistributed income of the companies is charged to the present French Undistributed Profits Tax. French companies earning profits here are, of course, already paying United Kingdom Income Tax and Profits Tax at the rate of 10 per cent., and will continue to do so. On Surtax, under the agreement United Kingdom residents are to be exempt from French Progressive Surtax, as it is called, on income derived from 1893 France, and reciprocally French residents will also be exempt from United Kingdom Surtax on dividends and interest received from United Kingdom companies. Finally, where any income continues under the agreement to bear tax in both countries, relief is given for tax payable in the country where the income originates.
I think everybody will agree that this is a valuable and useful agreement, that it adds to our general structure of Double Taxation Agreements, that it is fair and desirable from the point of view of both countries, and that it deserves the approval of the House.
§ 9.43 p.m.
§ Mr. Selwyn Lloyd (Wirral)
The hon. Gentleman has moved this Motion in brief terms, and I confess I do not follow all the reasons which he adduced in favour of it, but I think one can say this in principle, that we all agree that these Double Taxation Agreements are very much to the benefit of both countries, and we can give hearty support to these orders in principle. Of course, as a matter of commonsense, the taxes which the unfortunate citizens of this country have to bear at the present time are so grievous that it must be certainly intolerable to think that they should have to pay double taxation if that can possibly be avoided.
I have certain questions to ask the hon. Gentleman with regard to this rather lengthy and detailed Order. As far as I can understand it, this Order comes from the provisions of Section 51, 52 and 53 of the Finance Act, 1945, and from the Seventh Schedule—I think it is—of that Act. Under Section 53 of that Act regulations were made in the Order No. 466 of 1946, and pursuant to those regulations these various Double Taxation Agreements have been recorded in the form of orders.
My first question is, am I right in assuming that this is the second agreement made with France by way of double taxation relief arrangements? So far as I understand it, the only previous order which I have been able to trace relating to France is Order 164 of 1947. What I should like the hon. Gentleman to do, if he has the leave of the House so to do, or some other representative of the Government, is to explain at rather greater length how this Order represents an advance on the previous agreement of 1947?
I have a number of detailed questions to put to the hon. Gentleman with regard 1894 to this Order. The first relates to the date. I see that this agreement was made, according to the last paragraph on page 11:on the fourteenth day of December, one thousand nine hundred and fifty.Why, if the agreement was made on that date, which is set out and recorded in detail, has it taken so long for it to come before this House? It would seem a rather long interval to take place if, in fact, as I am willing to accept, the agreement was made so long ago as 14th December.
The second point is with regard to its duration. I think the hon. Gentleman should have made it clear how long this agreement is to persist. The Explanatory Note is rather misleading on the point. It says in the last sentence:The Convention is to take effect for the fiscal year 1950–51.But that, I take it, is not the limit of its effect; because according to Article XXVI it would appear that the Convention continues in force indefinitely, but that the contracting parties have a right, not earlier than 1954, on giving notice, to terminate it.
§ Mr. Selwyn Lloyd
I am obliged to the hon. Gentleman. I think that is a matter of importance which should be fully understood by all those involved.
The next question is a matter on which I personally would like some explanation. When we come to look at the title to the Schedule to the Order, we see that it is stated that this is aconvention between His Majesty in respect of the United Kingdom of Great Britain and Northern Ireland and the President of the French Republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.What I should like to have made clear is the respects in which this Order carries out the intention:of fiscal evasion with respect to taxes on income.I quite follow the provision which relates to the avoidance of double taxation, but what I do not understand is the respects in which the Order will prevent fiscal evasion. If one is to compare this 1895 Order with the one it replaces, one of the matters of interest to note is that in regard to the Order 164 of 1947 the agreement there says nothing at all about this prevention of fiscal evasion. Either those words mean something or they do not mean anything at all, and I would like the hon. Gentleman to explain to what extent this Order, and others like it, do help to build up a structure to prevent that fiscal evasion.
My next question is with regard to the first article of the Order. That deals with the taxes which are the subject of the present convention. It sets out the French taxes which are affected and the United Kingdom taxes which are affected. Paragraph 2 of that Article also states that the Convention shall apply to other taxation of a substantially similar character imposed in parts of the United Kingdom subsequent to the date of signature. I ask the hon. Gentleman if there had been any other additional taxation imposed since the date of the signature. That is a minor point.
What I think would be more interesting would be for the House to be told, if it is possible to do it in terms of easy comparison, the comparative structures of taxation. In other words, how the two systems of taxation compare and which country is benefiting more than the other from the effects. I think it is all very well to have general words in the Article, but I think that now we have an opportunity of considering the Order in some detail, it is of interest to know actually how much the taxpayer of this country is benefiting, and something of the comparative structures of taxes of the two countries. I am not seeking to invite the hon. Gentleman to go into any long discourse, but if there is some simple formula, I think that would be of interest to the House.
My next question relates to Article 2, which contains a series of definitions of certain terms used in the rest of the Order. One of the very material matters in that list of definitions is, of course, the definition of the territories to which this Convention is to apply. This is a point of substance in which I know some of my hon. Friends are interested. Article I of the 1947 Order, which again consists of a list of definitions, is quite specific that colonies, overseas territories, protectorates and mandated territories of both high 1896 contracting parties are excluded. That is an expression of specific exclusion in Article I of the 1947 Order. This Order is expressed rather differently. I would very much like to know the reason for that. If the hon. Gentleman will peruse again Article 2 he will see that the term "United Kingdom" means Great Britain and Northern Ireland, excluding the Channel Islands and Isle of Man. The term "France" means metropolitan France and excludes Algeria, the overseas departments and other territories of the French union, which is a rather different term of definition from the expressed exclusion in the previous Order of 1947.
There is another indication of the territories to which this Order is to apply if one looks at Article XXIII, which appears to provide for the extension of the Convention to other territories of high contracting parties. The territories to which this Article applies are, in relation to His Majesty the King, any territories other than the United Kingdom for whose international relations the United Kingdom is responsible, and, in relation to the French Republic, any department, protectorate or other overseas territory for whose international relations France is responsible. I ask the hon. Gentleman to be quite specific about the effect of these alterations.
To what extent is the geographical purview of this Order different from the Order of 1947, and to what extent does the permissive extension Clause of Article XXIII differ from the exclusion of 1947, because there are various territories associated with both contracting parties whose status, I am given to believe, is in some doubt under this Order. I should like the Financial Secretary, because this is one of the most crucial matters in the Order, to be quite specific as to which territories are affected, which territories are excluded, and to which territories this permissive extension can apply.
I make no apology for bringing up these points, because this is the only opportunity we have of scrutinising these matters and trying to put forward some submissions as to why these various complications are introduced. I should now like the Financial Secretary to explain what may seem to him to be a small point, but which is of some interest at any rate to lawyers. In Article II (1) (e) there is a definition of the term "person." It says that 1897The term 'person' means:I have been trying to see whether I can possibly assist the House on this matter. I have looked at the Swedish Order, which is the Order upon which this Order is to some considerable extent based. We have there a definition of the term "person" in quite different terms. According to that Order, the term includes
- (i) any physical person;
- (ii) any unincorporated body of physical persons; and
- (iii) any body corporate;any body of persons, corporate or not corporateIf the Swedish Order is the basis for this Order, which I believe to be the case, why should we have a different definition of the term "person"?
When we come to the 1947 Order dealing with France, we see that the definition is the same as in this case. Is there any difference between the two sets of definitions in these three Orders? It seems to be quite unintelligible and unreasonable that there should be any attempt to make any difference in these two definitions. It may be that the Government have a reason, in which case we shall be glad to know what it is. Questions of definition are not unimportant, because according to their precise interpretation decisions as to many thousands of pounds may be taken. It is possible that the Exchequer may lose considerable sums of money if the Government have slipped up in their definition, and individuals may also be penalised.
Under Article II (1) (f) we come to a definition of the words "company." The term "company" is said to mean "any body corporate." That would not seem to be an unreasonable definition, but when we look back to the 1947 Order, which this Order seeks to revise, we see that the term "company" means something quite different. In that Order, "company" means "any body corporate," with the qualification,which carries on operations for profit whatever may be the title it bears.What is the reason for removing that qualification? I can agree that the terms of the 1947 Order may possibly be repugnant to Members opposite because it contains a reference to the making of profits. It may be that because the making of profits has become so unattractive and unrealistic, following the course 1898 of events between 1947 and 1951, and the progress of nationalisation, that this is the reason this qualifying phrase has been left out. We are entitled to be told whether there is intended to be any difference, and whether there is any difference, between those two definitions, and why the Government have changed the terms of the new Order. Passing from what may seem to some hon. Members to be rather the dull, legal and technical side, we come to something different. If any hon. Members have read this Order they will realise how exhilarating are the subsequent items that we have to consider. There are 11 pages of exhilaration. In Article III, we get away from the definitions. The Article deals with the main part of the agreement and seems to contain a welcome conception. The idea behind Article III is that profits made in France by a British enterprise should not be subject to French taxation unless they have been made from a permanent establishment situated in France. That is rather different from the 1947 Order, but it is a sensible conception and one which I think we on this side of the House would welcome.
I should like the Minister to tell the House in what respect that differs from the 1947 conception. If he can explain to us the process of development from 1947 to this Order, it would be of importance. The continuation of this process of double taxation relief is of very great importance to the economy of the country.
Article III has a reference to one other matter about which I should like further information. After dealing with the question of the permanent establishment, the Article goes on to say:If it carries on a trade or business as aforesaid, tax may be imposed on those profits by France but only on so much of them as is attributable to that permanent establishment; provided that nothing in this paragraph shall affect the provisions of the law of France, as it stands at the date of signature of this Convention, as respects the taxation of profits of non-residents from the business of insurance.I should like to know exactly what are the provisions referred to. What is the effect of that reservation? It is a reservation of some importance to those carrying on business in the country.
There is another point which I want to put. I hope the hon. Member will not think that I am asking him about too many matters of detail. [HON. MEMBERS: "Oh, no."] If as I go along there 1899 is any hon. Member opposite who has the answer to any of these questions, I shall readily give way in order that he can tell it to me. I do not believe there is one single Member on the Government benches, apart from the Treasury Bench, who has even read this Order, and in those circumstances it is an impertinence for them to make these interruptions. We are exercising our right as a legislature of passing a highly important and highly technical matter, which may affect large sums of money, a great many individuals, and the public purse to a substantial extent. It is only worthy of this House that we should give this Order proper attention and detailed consideration. As I say, if any hon. Member opposite except those on the Front Bench have read the Order and can answer one of the points I am raising, I will gladly give way in order that he or she can do so.
I have dealt with Article III and I now come to Article IV. That, again, deals with a very technical matter and I do not want to read out the whole of this article. [HON. MEMBERS: "Do."] It is a little difficult to make the points without giving the context in which they are made. I particularly do not want to take up time unnecessarily, and all I say in regard to Article IV is, what is the tax referred to under Article 39 of the Decree of 9th December, 1948? That is putting the question in a very simple form without wearying the House by reading out all the details of the Article.
My next question relates to Article VI. From some of the comments of hon. Members opposite, they may possibly be relieved that I am not going to deal with Article V. I wonder if they know what it has reference to. Article VI is one of the matters which I think the hon. Member referred to in his very brief introductory statement. This, again, is a matter of very considerable importance. It deals with the impact of the Profits Tax. He did say something about it, but it was very quickly said, and I am afraid that I was not quite able to follow exactly what he did say with regard to the impact of the Profits Tax.
According to the Swedish Order, in Article V it is stated that the industrial and commercial profits of a Swedish enterprise shall be charged to United 1900 Kingdom Profits Tax only at the lower rate. That is perfectly clear in the case of the Swedish Order, but in the case of the French Order the situation is nothing like so clear. I should be glad to be told whether it is accurate that French enterprises are only going to be charged at the lower rate of the Profits Tax.
§ Mr. Selwyn Lloyd
I am very relieved that there is one of my questions which the hon. Member has been able to answer.
§ Mr. Selwyn Lloyd
The hon. Gentleman flatters me, and if he accepts the propositions which I put forward then no doubt he is on very sound lines. Nevertheless, that, I think, is not of as much interest to the House as the effect of this Order, and the Government views and intentions in regard to it. If he says that the effect of the Article is precisely the same as the effect of the Article of the Swedish Order, then I ask why is it not given in the same simple language? Why adopt this very different and complicated wording to say what is precisely the same thing?
I have a point or two to put on the next three Articles, but I must forbear and go on to Article IX which says:Dividends and interest paid by a company which is a resident of the United Kingdom to a resident of France, who is subject to tax in France in respect thereof and does not carry on trade or business in the United Kingdom through a permanent establishment situated therein, shall be exempt from United Kingdom sur-tax.Some hon. Members may think that is fairly simple in itself. I am not sure that it really is quite as simple, or even whether it really sounds simple. When we come to look again at the Swedish Order, upon which this one appears to be based, we find that there is a very similar Article—Article VII (a)—but there is also a new Article, a second paragraph, which says:Where a company which is a resident of one of the territories derives profits or incomes from sources within the other territory, there shall not be imposed in that other territory any form of taxation on dividends paid by the company to persons not resident in that other territory or any tax in the nature of undistributed profits tax on undistributed profits 1901 of the company whether or not those dividends are undistributed profits representing in whole or in part profits or income so derived.Why is it considered necessary to put in that Order the further paragraph dealing with this matter which is not found in the corresponding part of the French Order? I assume that there must be an explanation of that fact. If there is an explanation and the hon. Gentleman knows it, I do not propose in this case to offer a possible explanation, for I would much rather hear from him what exactly is the reason for that fact.
There are various other matters, but I will pass on to Article XIII. If the hon. Gentleman has been keeping a check on my questions, he will find that this is my thirteenth question. According to that Article it is stated that:… remuneration, including pensions, paid by or out of funds created by one of the high contracting parties to any individual for services rendered to that party in the discharge of governmental functions shall be exempt from tax in the territories of the other high contracting party, unless the individual is a national of that other party without being a national of the first mentioned party.So, by that paragraph of that Article, remuneration, including pensions, earned by the discharge of governmental functions is exempt, subject to the single reservation. Paragraph 4 of that Article states that:The provisions of paragraph (1) of this Article shall not apply to payments in respect of services rendered in connection with any trade or business carried on by either of the High Contracting Parties for the purposes of profit.Is that a reference to nationalised undertakings? Is that the object of the inclusion of that paragraph? Will the hon. Gentleman explain the provisions of those two paragraphs compared with the provisions of Article XV? Article XV says:… pensions (other than a pension of the kind referred to in paragraph (1) or (2) of Article XIII) or any annuity, derived from sources within France by an individual who is resident in the United Kingdom and subject to United Kingdom tax in respect thereof, shall be exempt from French tax.If I understand that properly, all pensions are exempt from French tax. What about remuneration derived from sources within France by an individual who is a resident of the United Kingdom? Why is that excluded from the purview of this Order? Why is there this difference between Article XIII and Article XV in regard to that matter?
1902 I have only one final question to ask—[HON. MEMBERS: "Go ahead with it!"]—or possibly two. Article XIII (3, e)refers to a considerable number of Acts of Parliament. It deals with the payment of injury and disablement pensions and refers to two Acts of 1914, the Injuries in War (Compensation) Act, 1915, and the two Acts of 1939, the Pensions (Navy, Army, Air Force and Mercantile Marine) Act, 1939, and the Personal Injuries (Emergency Provisions) Act, 1939. If the hon. Gentleman will look back to the 1947 Order, he will see that there is no reference in it to those two 1939 Acts of Parliament. Why have they been put in? Are there a number of other Acts of Parliament which have to be incorporated in the terms of this sort of Agreement?
There are quite a number of other points to be asked about this complicated business, but my final question is with regard to double Estate Duty. I think I am right in assuming that is not within the purview of this Order, but may I ask the hon. Gentleman whether there are any Double Estate Orders in fact, and does he consider that in future the Government will be able to incorporate that sort of provision in this structure for the relief of double taxation?
As I have said before, while we give general welcome to this Order, we are entitled to have definite answers upon the points I have raised. If the hon. Gentleman will only give full and frank answers to these points, they will be of great benefit to those who have to seek to interpret at a later stage this complicated tangle of words.
§ 10.16 p.m.
§ Mr. Maudling (Barnet)
I want first to refer to the date on which this Order has been introduced. I understand that similar proposals were introduced into the French National Assembly on 26th January, so it seems that a considerable interval has passed before this important Order has been brought to the attention of the House.
Next, I want to turn to its economic effects. I believe it is not the general principle on which these Orders are negotiated to try to effect too nice a balance between the concessions made by one country and the other, or between the gains to be made by one country or another, either by individual taxpayers or by the Treasuries concerned. However. 1903 it would be of value to the House to hear from the hon. Gentleman some estimate of the effect of this Order, in financial terms, on the citizens and Treasuries of either party to the agreement.
Broadly speaking, one would expect that Double Taxation Agreements would be of benefit to capital exporting nations. That, presumably, is why certain nations, such as the South American countries, who are capital importing nations, have not been eager to conclude these agreements. We, as a capital exporting nation, should stand to gain quite considerably from this Order, so it would be interesting to hear some details of its financial and economic effects.
I believe figures were published by the Bank of England giving an estimate of the British capital now invested in France. Can the Financial Secretary give us similar figures? I, for one, was surprised how relatively small was the British capital still invested in France. In fact, I would judge that the major economic benefit which would accrue to this country from this Order would be in respect of taxation liabilities of British shipping companies and British civil aviation companies. After all, in introducing this Order, the hon. Gentleman gave us a short, almost cursory examination, and so far as I can recall he did not enter in any way into the economic consequences of the Orders.
We are hoping to obtain certain benefits from this Agreement. What will the French gain from it in exchange? So far as I can see from reading the Order, the main benefit will be the exemption from British Surtax of dividends paid by United Kingdom companies and received by French residents. I should have thought it was most exceptional for any French resident in practice to pay Surtax on dividends arising in the United Kingdom. I believe the position is that where a French resident draws an income from this country in excess of £2,000 a year, he becomes liable for Surtax.
The Treasury may be able to raise an assessment where the £2,000 arises from one single source of income, but I doubt very much whether the Treasury or the Revenue authorities are able in practice to raise assessments where the £2,000 income of a French resident is derived from a number of separate United 1904 Kingdom sources. I doubt very much, therefore, whether the amount of tax now collected by or on behalf of the hon. Gentleman in respect of United Kingdom dividends paid to French residents for Surtax amounts to more than a row of beans. If so, what benefit will the French obtain from their side of the agreement?
Another question which I would like to ask the hon. Gentleman concerns a particular French tax—which I think is called the ImpÔt de Solidarité Nationale—of 5 per cent., which was imposed not very long after the war. I should be interested to know to what extent this impost is affected by the terms of the Order, because it has been a very serious matter for a number of British companies operating in France.
Then there is the question of the Colonial Territories. By one of the later provisions of the Order—Article XXIII, I think—it is possible to extend its provisions to the Colonial dependencies of the contracting parties. It is most important that that should be done as soon as possible. Let me give an example of what might happen under the Order. There might be a subsidiary or affiliated British company operating in the Ivory Coast or in Dahomey which might be subject to a local dividends tax and then to a French profits tax before the money is transmitted to this country. As I understand it, the Order will reduce the French profits tax element in that taxation to a maximum of 10 per cent., but it will not in any way reduce the element represented by the local dividends tax in the Colonial dependencies. Of course, the thing works the other way where French residents are drawing income from British Colonial Territories. It is most important that this extension should be made as quickly as possible, not only on the question of English income drawn from French territories or of French income drawn from English dependencies, but on income passing between one Colonial territory and another.
Another point which I should like to raise is the question of personal allowances. The Explanatory Note refers to this point when it says that residents of France will be——
§ Mr. Speaker
The hon. Member is opposing the Motion. Of course, there can be no Amendment to the Order, and 1905 therefore the points which are being raised must be in opposition to the Motion.
§ Mr. Maudling
With respect, Mr. Speaker, I am seeking clarification of the effects of the Order before being able to decide exactly the extent to which one might support it.
A point which arises from the Explanatory Note is that residents of France will be entitled to the same personal allowances as British subjects resident abroad, and the corresponding arrangements are extended by France to British residents. This ties up with the point raised earlier by my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd). I understand that the arrangements for British subjects resident abroad to which reference is made are that the allowances which a British subject resident abroad can have on his income in this matter are Based on the ratio between his income from U.K. sources and his total income. This concession is apparently to be extended by the Order to French residents in respect of income drawn from this country, and in order to ascertain for the purposes of the Order the amount of personal allowance which a French resident shall be allowed to claim, it will be necessary for the British Treasury to have a statement of the total income of the French resident.
I think this is a very significant point because if the benefit of this Order is to be obtained for a French resident and vice versa,for an English resident, the individual concerned resident in France will have to make a statement of his total income to the British Treasury. This ties up with the point made by my hon. and learned Friend the Member for Wirral. To what extent is this Order intended to provide or encourage opportunities of avoiding fiscal evasion? To what extent will information as to the affairs of British taxpayers not resident in France be passed to the French Treasury and to what extent are the tax gatherers of the two countries to get together on this?
There are one or two points in the Order itself which I should like to raise. In Article I, subsection (2) it is stated:The present Convention shall also apply to any other taxes of a substantially similar character imposed in France or the United Kingdom.1906 Would the hon. Gentleman consider that a tax of the character of the Special Contribution would be of "a similar character," because at one time the Government treated that as a tax on income and at another time as a tax on capital, and I see that in Article XI there is a reference toany tax in respect of gains from the sale, transfer, or exchange of capital assets.Is it intended by that to imply that a tax on capital gains is the same thing as a tax on income? If it is, that is the first time I have heard of any responsible Treasury official suggesting that there is a similarity between the two. It may be very interesting to find their minds working in that direction at this time of the year.
Article II, subsection (2), as I understand it, is intended to make a special provision in a case where only part of the profits arising are transmitted to the other country and only the transmitted part is to be treated as taxable under this Order. How would this principle affect the taxation of profits in countries like the Argentine?
In Articles III and IV there are two provisions which seem at the moment to be quite unworkable. I think we ought to hear from the Financial Secretary how he considers these things can be worked. In subsection 3 of Article III, and again in Article V, there are provisions whereby the profits in France or in England, whichever it is, shall be reduced or altered by reference to a wholly notional conception. Subsection (3) says:Where an enterprise of one of the territories carries on a trade or business in the other territory through a permanent establishment situated therein, there shall be attributed to that permanent establishment the industrial or commercial profits which it might be expected to derive in that other territory if it were an independent enterprise engaged in the same or similar activities under the same or similar conditions and dealing at arm's length with the enterprise of which it is a permanent establishment.In other words, if it is not independent it is to be treated as if it were independent, and if it is independent, it is to be treated as if it were not.
My last point arises under Article X, subsection (3), which refers to royalties. It says:Where any royalty exceeds a fair and reasonable consideration in respect of the rights for which it is paid, the exemption 1907 provided by the present Article shall apply only to so much of the royalty as represents such fair and reasonable consideration.I can find no provision in the Order which says who is to decide what is "a fair and reasonable consideration" and how it is to be determined at any time what is fair and what is more than fair. In view of the important interest of the Government in many royalties, such as oil royalties in different parts of the world, it seems important that we should not accept the principle whereby it should be left in the air for anyone to say whether a certain royalty is more than fair and reasonable. In general, I am sure the Order is to be welcomed, as any reduction in taxation is welcomed. That is probably why this side can welcome the Order and the other side do not. I think in general it will contribute to the flow of trade between the two countries, but there are important points which ought to be cleared up by the hon. Gentleman before the House is prepared to give their approval to this Order.
§ 10.30 p.m.
§ Mr. Walter Fletcher (Bury and Radcliffe)
I am one of those who have pressed for this Order to come into being for two or three years. I hope I shall not be jeopardising my right to later criticism if I start by saying that I come to praise Caesar and not to bury him. I think the levity on the other side is rather misplaced. On the effect of this Order depends not only the actual profits of businesses already established on both sides of the Channel but, thinking in terms of the integration of the joint manufacture of armaments and joint economic effort, the establishment of a great many future businesses, where the actual resources of both countries can be used to the good of both countries. The use of inventions and ideas of this country for establishing new businesses in France could not be done until we have some system such as provided in this Order.
I happen to be one of those affected by this, one of those who have established a business in France. I declare my interest straight away. That is the reason why I have been studying the Order. I have a few points to ask about it. Article 1, paragraph (2) of the Schedule provides that:The present Convention shall also apply to any other taxes of a substantially similar 1908 character imposed in France or the United Kingdom subsequently to the date of signature of the present Convention.Does the taxe de solidaritécome under that heading? The Government have rather a poor record on that point. When representations were made to them from many sources that this tax was very unfair on many British businesses established in France, although it was obvious that the tax was being wrongly demanded, because it could not be legally imposed under the Act of 1886, we could get no sort of help at all from the Government in avoiding the effect of a tax that should not have been imposed.
When we talk of "substantially similar character" does that mean the possible representation of a capital tax. Should that arise, neatly disguised in some other form, should France, unfortunately following the bad example of this country, impose something like the capital levy tax we have seen in this country, will this paragraph help to protect both sides in this matter?
The other point to which my hon. and learned Friend—who opened too briefly but very well—referred, arises in Article 11, paragraph (1) (b:)The term (France) means metropolitan France, and excludes Algeria, the overseas departments and other territories of the French Union;Since these negotiations were started there has been a complete change in the status of Indo-China. Her status has been materially altered by the Pau Agreement of last year and I should like to know from the hon. Gentleman whether that change of status will permit those firms who are established there the same right of setting off taxation referred to as in metropolitan France, or whether the exclusions in sub-paragraph (b)apply to Indo-China. This is a very important question, because this country has invested a great deal of capital in Indo-China in past years.
At the moment every effort is being made to bring the economies of Indo-China and Malaya closer together and to make them work together. It will militate heavily against that if this Order does not apply to them. Taking it by and large, I believe that this is a very good movement, but there is the curious anomaly that while we have, or are about to have, this particular tax relief, the 1909 anomaly exists that France and Belgium already have a mutual tax relief system, we have not one with Belgium, though we have with France. Unless we are to have considerable disequilibrium, the next logical step is surely that we should have a system of double taxation relief between Belgium and this country. After we have heard the hon. Gentleman's answers we shall know whether it ought to be in the same form. If the hon. Gentleman is not well primed, or from his own knowledge and genius is not able to answer the questions, the technical approval which we are supposed to express may well be withdrawn.
§ 10.36 p.m.
§ Mr. Assheton (Blackburn, West)
I am glad that this Order dealing with double taxation relief in connection with France is more comprehensive than the Order which was passed earlier in the evening in connection with Greece, an Order about which I understood from the Financial Secretary that he was going to say something. I am sorry that we did not hear anything about it because that Order was a very limited one. I can only hope that it was a first step and that further Orders will be negotiated later.
The French Order is certainly rather a complicated one. It has only 26 Articles. I am glad that it is not 39 like the Articles of Religion. If it had, the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) would have taken a great deal longer over his explanation to the House than he actually did. But for the advantage which the House had of hearing his speech, we would have known little about the Order, because the Financial Secretary did not tell us much.
A great many of these Orders have been passed and during the last Parliament, because of the great pressure of Government business, there was not as much time and opportunity for discussion of them as there is today, when there is so little Government business about. We have an opportunity for giving rather closer attention now to these Orders than we were able to give in the past. It is clear from the speeches of my hon. Friends behind me that a great deal ought to be said, and that not enough has been said in the past. I hope very much that there may be further opportunities for 1910 examining these Orders. I hope that the Financial Secretary can assure us that he proposes to give a reply, by leave of the House, later on.
§ The Secretary of State for the Home Department (Mr. Ede)
The hon. Gentleman does not need to ask leave of the House. He is the mover of the Motion.
§ Mr. Assheton
I apologise for overlooking that point. I am glad that no difficulty will arise. I feared some hon. Members opposite might not encourage the hon. Gentleman to speak again. I hope he will answer the principal points raised. The hon. and learned Member for Wirral made a very carefully thought out and well argued speech. His points were of considerable significance. I hope that the Financial Secretary will answer these points and particularly those on definitions.
§ Mr. Daines
What I said was—what is the right hon. Gentleman trying to say? He has been talking for five minutes. [Interruption.]
§ Mr. Assheton
I am sorry if the hon. Member was not able to hear me, that I did not speak loud enough. I was under the impression that what I was saying was quite comprehensible, as the hon. Member will see if he reads HANSARD tomorrow.
There are three points which I wish to put to the Financial Secretary apart from the questions already raised. One is the question of double Estate Duty. May I take it that there is no provision in this Order for dealing with double Estate Duty, because in the Act passed by the Government in 1945 provision was made for such orders but I have not seen them come along.
§ Mr. Jay indicated assent.
§ Mr. Assheton
I gather from Article XX that the amount of credit to be given in the United Kingdom for French tax on dividends from French companies is rather different from previous orders. I do not know if the Financial Secretary agrees with that point. If so, I should like him to account for it.
I think the proposal about French taxes on profits of United Kingdom companies 1911 in France is difficult to understand. I do not understand the difference in the proposals for taxation on branch and subsidiary companies, and if the hon. Gentleman would explain the point it would help the House considerably. As he is aware, many companies operate in France through branches rather than through subsidiary companies and it is not clear to me how this Order will affect branches as opposed to subsidiary companies. I gather that France will not repay tax deducted at source before the date of ratification. I would ask the hon. Gentleman whether that particular point appeared in any previous Order or not? It struck me as being something new.
My hon. Friend the Member for Barnet (Mr. Maudling), in his very interesting speech, asked about the economic and financial effects of this Order, and that is a subject on which I think we are entitled to hear a little more from the Government Front Bench. After all, these Orders are very important although very complicated, so complicated that very few hon. Members appear to have taken the trouble to study them at all. When we realise what an enormous effect taxation has on our trade in various parts of the world, I think this is a matter which hon. Members, particularly those representing industrial constituencies, should give a great deal more attention to than they have done in the past. I hope that the Financial Secretary will be able to answer the points put to him, and I have no doubt there are other points which others of my hon. Friends wish to put.
§ Mr. R. J. Taylor (Lord Commissioner of the Treasury) rose in his place, and claimed to move,"That the Question be now put."
§ Question, "That the Question be now put," put, and agreed to.
That an humble address be presented to His Majesty, praying that on the ratification by the President of the French Republic of the Convention set out in the Schedule to the Draft of an Order entitled the Double Taxation Relief (Taxes on Income) (France) Order, 1951, a copy of which was laid before this House on 23rd January, an Order may be made in the form of that Draft, "put acordingly and agreed.
§ Address to be presented by Privy Councillors or members of His Majesty's Household.