DOUBLE TAXATION AGREEMENT, SOUTH AFRICA (Hansard, 7 March 1955)

§ The Financial Secretary to the Treasury (Mr. Henry Brooke)
I beg to move, That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (South Africa) Order, 1955, be made in the form of the Draft laid before this House on 25th January. There is another Double Taxation Order upon the Order Paper which also covers amendments to a previous Agreement reached with South Africa. Although the first deals with taxes upon income and the other with Estate Duty, it may be the wish of the House that I should speak upon both together, and I understand that hon. Members have no objection.

§ Mr. Deputy-Speaker (Sir Rhys Hopkin Morris)
If that meets the convenience of the House, let it be so.

§ Mr. Brooke
The first of these Orders is a proposal that we should validate a protocol amending the Double Taxation Agreement with the Union of South Africa which was signed in October, 1946. There are certain small points which I shall endeavour to explain to the House and which seem to make it desirable to approve this new protocol. The protocol in question was signed on 5th November, 1954, and this draft Order was laid upon 25th January of this year.
113 The protocol amends the existing Double Taxation Agreement in two respects. First, it extends the scope of the exemption given by Article V of the original Agreement in respect of shipping and air transport profits. At present, each country exempts from tax profits derived by residents of the other country from operating ships or aircraft registered in that other country. The restriction of the application of the exemption to ships or aircraft registered in the other country was included in the original Agreement at the request of the Union Government.
We prefer the type of provision which is more common in our other Agreements, under which shipping and air profits accruing to a resident of one country are exempt from tax in the other country, regardless of where the ships or aircraft are registered. We have been able to reach agreement with the Union Government upon making this change, and the new Article omits the restriction. I should add that when the existing Agreement was being negotiated it was under stood on our side that the exemption of air and shipping profits from Union taxation would automatically result in their exemption from provincial taxes upon income or profit. However, after the Agreement had come into effect, the South African authorities were advised that this construction could not be upheld. It has subsequently been agreed, I am glad to say, that the shipping and air exemptions should be specifically ex tended to the new provincial taxes, which was the original intention of everybody.
The second Amendment made by the Protocol will have general agreement. It is to include the new provision for exemption of payments made for the benefit of visiting students and business apprentices. A provision of that kind is included in almost all our other Double Taxation Agreements and it is based on an article in the Model Convention drawn up by a Committee of the League of Nations. The Protocol is to have effect from the fiscal year 1948–49, which was the year in which the Union adopted the basis for the taxation of shipping profits.
The other Order, somewhat similarly, corrects an unexpected result of the Agreement that was made in October, 1946, to deal with double taxation in respect of estate duty. A curious anomaly, if one can call it that, has emerged, and an Agreement has been 114 signed with the Union Government to amend the 1946 Agreement. It was signed on 22nd December last. This draft Order was laid before the House on 15th February. Unless the House wishes it, I will not go into great detail about this Order. The matter is highly technical, but I would be very glad, if I were pressed, to give further information.
It was found that the 1946 Agreement was operating in certain cases to make chargeable to Estate Duty in one country property which, had there been no Double Taxation Agreement at all, would not have been taxable in that country. This was certainly not foreseen by anybody, and seems to be an undesirable result. Double Taxation Agreements are usually designed to avoid excessive taxation falling in two places at once and to relieve a burden, but not to give either country a special advantage.
There are certain cases where the endeavour to carry out that laudable object was imposing a charge to duty in one country for assets which would not have been otherwise liable there. This amending agreement provides, in effect, that, in relation to duties accruing on or after 1st January, 1952, the code of rules in the 1946 Agreement shall not be applied where the effect of applying it would be, in either country, to charge to duty property which, apart from the 1946 code, would be outside the charge of the country in question. It is a perfectly sensible provision and has been introduced to meet a case which was quite unforeseeable when the 1946 Agreement was made.
Perhaps I should explain that the date, 1st January, 1952, was chosen because that was the nearest round date to that on which it was decided to give the Union Government the substance of what they were asking in this matter. It was agreed between the two Governments that that should be the appropriate date after which estates of persons who died should come under the new Agreement. The matter is technical, but I trust I have explained it to the satisfaction of the House. If any hon. Member presses me further I will endeavour to give more complete information.

§ Mr. Douglas Jay (Battersea, North)
As I understand, these two Orders extend the taxation exemption applied in both 115 countries. They presumably involve a certain loss of revenue to the Exchequers of each country. Would the Financial Secretary say whether the United Kingdom Exchequer loses revenue as the result of this Order, and approximately how much per year it will be?

§ Mr. Brooke
I should say that under the second of these Orders the United Kingdom might lose a small amount of revenue, but the amount would be negligible. It is difficult to say how much. The first Agreement is beneficial to us, so I do not think there will be much loss to us under it.