DOUBLE TAXATION RELIEF (FEDERATION OF RHODESIA AND NYASALAND) (Hansard, 27 March 1956)

§ 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) (Federation of Rhodesia and Nyasaland) Order 1956, be made in the form of the Draft laid before this House on 31st January. This matter arises entirely through the formation of the Federation. There have been in existence separate double taxation agreements between the United Kingdom and each of the three constituent Territories of Northern and Southern Rhodesia and Nyasaland. Now that these are merged in a Federation, it would be clearly unnatural that we should continue to have separate double taxation agreements with the constituent territories.
2102 Accordingly, after further negotiation, an agreement has been reached between the United Kingdom authorities and the Federation authorities by which, in effect, the existing double taxation agreements are merged. In so far as they are not all entirely identical, there has, of course, had to be a process of ironing out small differences, but there is nothing here of sufficient importance for me to draw to the attention of the House, and I can ask the House to approve the Motion with the assurance that it is in essence an act of consolidation.

§ Mr. John Dugdale (West Bromwich)
We are all in general agreement that the idea of double taxation is not altogether satisfactory and perhaps we may look for a moment at the effect of this Order. I think I am right in assuming that in the main it affects United Kingdom companies moving to the Federation. Since 1953 a number of companies have moved, including the Rhodesia Selection Trust, The Anglo-American Trust and the Wankie 2103 Colliery Co. These companies have moved in order to obtain the benefit of lower taxation. Taxes in the Federation are considerably lower than in this country.
As I understand it the main reason why the taxes are lower is because in the Federation they do not pay very much for defence; most of that cost is borne in this country on their behalf. They pay scarcely anything at all for social services and those two things—defence and social services—are the main items for which companies in this country have to pay by way of taxation. I wish to ask whether representation may be made to those companies in the Federation that to some small extent they should increase the low wages which they now -pay, for example £2 10s. a week to miners for work underground—

§ Mr. Speaker
Order. The right hon. Gentleman is going far beyond the bounds of this Order which deals only with the relevant double taxation. No question of wages arises in it, nor does it bring into account the financial policy of the territories mentioned.

§ Mr. Eric Fletcher (Islington, East)
With respect, Mr. Speaker, when considering whether approval should be given to this Order surely the House is entitled to consider how it works out and what will be the effect in relation to companies which may be trading both in this country and in Rhodesia? Surely the House is entitled to consider whether it is advantageous for a company to move its business from this country to Rhodesia and to see how this Order will operate with regard to the internal affairs and expenses of those companies?

§ Mr. Speaker
The hon. Member is mistaken. The scope of the Order is not as wide as that. I see no reference to wages in it and I do not think they may be discussed under this Order.

§ Mr. Dugdale
Naturally, Mr. Speaker, I bow to your Ruling, and I will not go further into the question of wages. I have already said that they are exceedingly low and I now have it on record as to how low they are in one industry.
I wish to mention only one other point which has no connection with wages. I desire to refer to Article XI which states: 2104 The remuneration derived by a professor or teacher who is ordinarily resident in one of the territories, for teaching, during a period of temporary residence not exceeding two years, at a university, college, school or other educational institution in the other territory, shall be exempt from tax in that other territory. The word "university" may be unnecessary in this case. At present there is no university. There may be one university in the future and it is a university to which I hope no English professor will go at any time if the reports that it is to be a colour-bar university are correct. I understand that that is so and that in fact there will be separate dining halls and separate houses for all the students. If that is so, no professor will go from this country, and it will therefore be unnecessary to mention "university" in this case. I hope that these reports are wrong and that there will be no colour bar.

§ Mr. Speaker
Order. The right hon. Gentleman is extending discussion on the Order well beyond its limits and he ought to know that. I cannot sit here and listen to the Rules of the House being disregarded like that.

§ Mr. Dugdale
I will say in conclusion only that I hope that we can be assured that these reports are wrong and that we may retain the word "university." If they are correct, at a later stage I shall move to delete the word "university."

§ Mr. Gordon Walker (Smethwick)
The Financial Secretary referred to the differences between this consolidated Order and the three previous Orders with the separate territories of which it takes the place. Is this just a difference of drafting and things of that sort with no substance in the differences? I must frankly admit that I have not given myself the trouble of going through all the previous Orders, because it is very tricky to read them in detail and remember how one differs from another. I hope that I can have an assurance about that.
The Order is made retrospective to 1st April, 1953. The Explanatory Note says that this is an Agreement which: …will supersede the existing Agreement and Arrangements with the constituent territories, is expressed to take effect from 1st April 1953 … 2105 That is an ingenious way of saying that the Order is made retrospective to 1st April, 1953. That is a big hop back to the past.
Was it necessary to delay so much that one has now to pass extremely retrospective legislation, covering the better part of three years? It may be that it was very difficult and took a great deal of time to work out. It may be that it involved the labours of many civil servants and has taken three years to carry out. On the other hand, it may be that nobody thought of doing this until later than they should have thought of doing it.
There is a possible point of substance about which I should like an assurance and it is whether we are really wise to destroy the Orders with the three separate territories. I am not sure whether it is wise, given the constitution of the Federation of Rhodesia and Nyasaland, to have terminated the previous double taxation agreements with the three territories. Article 82 of the Constitution made by Order in Council in 1953 says in effect that the legislature of one of the three territories with whom we will have double taxation agreements after this Order comes into effect may, subject to the provisions of this Article, authorise the Federal Government to levy and collect on behalf of that Territory a tax … upon income.
In other words, there is something called a Territorial surcharge which turns out to be Income Tax which the individual territory can authorise the Federal Government to collect on its behalf. Even in the terms of Article 82 it is doubtful whether it is Income Tax levied by the Territory or by the Federal Government. In the list of concurrent powers in paragraph 76 of the Second Schedule where there are covered the things of which nobody thought of before we find: Any other matter whether or not"— referred to by the Constitution— both the Federal Legislature and the Legislature of the Territory have for the time being power to make laws, or in relation to which reference is made in this Constitution to laws both of the Federal Legislature and of the Legislature of a Territory. Unquestionably, Article 82, which I have mentioned, refers to the law of territory. I would have thought, therefore, that it gave power to a territorial 2106 Government to authorise the Federal Government to levy a tax which comes in the concurrent list and not in the exclusive list, and that therefore it might be wiser to pass only the first of the two Orders, which I concede is necessary—there is a new Government in being and we must have a double taxation agreement with it—but that it might not be wise to pass the second Order, which would obliterate and bring to an end our three existing double taxation agreements with the three territories.
If there is any risk whatever of a lawyers' paradise appearing and the taxpayers getting into a terrible state later on, I cannot see what we should gain by abrogating the double taxation agreement with the three territories other than a little neatness. I suggest to the Financial Secretary that we may be running into a certain amount of danger which could be obviated by passing only the first of these Orders and not the second and that it would be wiser to be prudent rather than neat.

§ Mr. Eric Fletcher (Islington, East)
We are entitled to a little more information from the Financial Secretary before we approve the Order. I am encouraged to say that because of the derisory remarks from the benches opposite which greeted some of the observations of my right hon. Friend the Member for West Bromwich (Mr. Dugdale).
I should like the Financial Secretary kindly to explain the very odd provisions of Article IX. It is not obvious to me, and I doubt whether it is obvious to anybody in the House, why we should be asked to discriminate, as this Order does, between individuals of different kinds who earn their living in the territory. Article IX provides in paragraph (2) that An individual who is a resident of the Federation shall be exempt from the United Kingdom tax on profits or remuneration in respect of personal (including professional) services performed within the United Kingdom in any year of assessment if he is living in the territories for a certain time. But then there is a curious exception, which states: The provisions of this Article shall not apply to the profits or remuneration of public entertainers such as stage, motion picture or radio artists, musicians and athletes. 2107 We have had no explanation whatever from the Financial Secretary of this curious discrimination against stage, motion picture or radio artists, musicians and athletes. What, for example, have athletes done which causes them to be the subject of this seemingly unjustifiable discrimination? Is it not the policy of the Government to encourage athletics in the territory and a proper exchange of athletic talent between one country and another? I should have thought that in the best interests of relations between the United Kingdom and Rhodesia, this was a very undesirable provision. Is it something new, or is it repeated from the Orders which the present Order supersedes?
The Financial Secretary told us that although the Order was in the nature of a consolidation Order, it contained a number of changes and modifications of the old law, but he did not condescend to explain, as he should have done, what the changes were. This is one matter which came to my notice when I was reading the Order.
Secondly, as my right hon. Friend the Member for West Bromwich said, we are all concerned with education, not only in this country but in all parts of the Commonwealth. Article XII, while it appears desirables in itself, is worthy of much fuller justification by the Financial Secretary than we have yet had. I do not quite follow its precise purport. It says: A student or business apprentice from one of the territories who is receiving full-time education or training in the other territory shall be exempt from tax in that other territory on payments made to him by persons in the first-mentioned territory for the purposes of his maintenance, education or training. As my right hon. Friend said, and as you will be aware, Mr. Deputy-Speaker, there is a very considerable grant from the United Kingdom, through the Colonial Development Fund, of about £1¼ million for educational purposes, particularly university purposes, in these territories. We all want to encourage that, but some of us have doubts whether the amount being allocated is sufficient.

§ Mr. George Thomas (Cardiff, West)
Hear, hear.

§ Mr. Fletcher
My hon. Friend the Member for Cardiff, West (Mr. G. Thomas) agrees with me.
2108 I hope that the Financial Secretary will say what exactly is the impact of this Double Taxation Relief Order on the educational grants which we are making to the Federation of Rhodesia and Nyasaland. Is this Article designed, as it appears to be, to encourage education in these territories? If so, may we have an assurance that the purpose to which this grant is devoted and the relief which is being given are such as to ensure that there is no colour discrimination in the territories? It would be most unfortunate if the effect, directly or indirectly, of this Order were to encourage—

§ Mr. Deputy-Speaker (Sir Rhys Hopkin Morris)
The hon. Member is now going beyond the scope of the Order.

§ Mr. Fletcher
I am very anxious not to go beyond the scope of the Order, Mr. Deputy-Speaker. All that I was hoping to do was to get some elucidation from the Government, especially from the Financial Secretary to the Treasury whom we all know takes a very great interest in educational matters. I am sure that the right hon. Gentleman is anxious, before the House parts with the Order, to give us the fullest information he can to justify this unusual relief from taxation provided in Articles XI and XII not only for students enjoying education in these territories, but, under Article XI, for teachers, some of whom, presumably, go from this country to Rhodesia for the purpose of trying to raise the standard of education there.
I am not at all satisfied either that the provisions of Article XI are adequate for the purpose or that they will be applied in the way in which we all desire, namely, to give the broadest education in these territories without discrimination of any kind in the way with which we are familiar in this country. After all, it has been a principle of education in the United Kingdom that it should be available without discrimination on the grounds of colour, race, creed or sex.

§ Mr. Deputy-Speaker
The hon. Member is now repeating what I objected to earlier.

§ Mr. Fletcher
I am anxious to keep within the bounds of order, Mr. Deputy-Speaker. The whole purpose of my inquiry is to receive some assurance that in relieving university professors and 2109 students from United Kingdom Income Tax in order that educational facilities may be developed in these Commonwealth Territories the same principle will be observed. I hope that the Financial Secretary will be able to give a categorical assurance on that matter before we approve the Order.

§ Mr. H. Brooke
The Inland Revenue knows nothing of colour except the colour of a man's money. It is certainly not for me to pronounce on this Order about matters of administration or on colour bar in the Federation, or in any other part of Her Majesty's Dominions. My business is to commend to the House an Agreement that has been negotiated between two Governments, which is, as I explained, virtually a consolidation of three previous Agreements and is on similar lines to Agreements which the House has constantly approved, I am glad to say, without a Division, when they have been reached between the United Kingdom and other countries.

§ Mr. Dugdale
The right hon. Gentleman said that the Inland Revenue knows nothing about colour bars or subjects of that kind. May I ask why there is no representative here from the Commonwealth Relations Office, who might know something about it?

§ Mr. Deputy-Speaker
That matter does not arise on this Order.

§ Mr. Brooke
This is a double taxation agreement. I am answering points raised by a number of hon. and right hon. Gentlemen opposite. It is based on a draft model agreement which was drawn up by the Fiscal Committee of the League of Nations. So were the three original Agreements which are now being superseded. I can therefore assure the House that there is nothing curious or unusual in any of these provisions. They are not something which has been thought up for private British purposes, or in relation to a particular question that might arise as between Britain and the Federation. We are simply seeking to give people who are resident in one of these countries and derive some of their income from another the ordinary relief from double taxation which it has been British policy, under a succession of Governments of different colours, to seek to secure throughout the world.
2110 The hon. Member for Islington, East (Mr. E. Fletcher) spoke about Articles XI and XII, both of which are in common form. They are designed to prevent the exchange of students and teachers being interfered with through the fear that a man or woman who thus travels to another educational institution may be damnified thereby, by coming under double taxation and suffering while obviously endeavouring to perform a public service.
The right hon. Member for Smethwick (Mr. Gordon Walker) questioned whether the previous Agreements ought to be repealed. I can assure him that this has not been done lightly, and that these matters have been thoroughly investigated by those who are negotiating. I should point out that this is one Order and not two Orders, to confirm two Agreements which were reached at the same time. In fact, both the main Agreement and the supplemental Agreement were signed on 25th November of last year. This Order was, in accordance with the Act, laid before the House on 31st January, 1956. It requires an affirmative Resolution of the House to bring it into force.
The right hon. Gentleman asked why it was being back-dated so far. The answer is that it was on 1st April, 1953, that the Federal Income Tax system came into force in the Federation. As this whole Agreement arises out of the merging of the three Territories into the Federation, it is convenient that the new Double Taxation Agreement with the Federation should operate from the date when the Federal Income Tax system came into force.

§ Mr. Gordon Walker
I was not questioning whether it was wise to have the date starting then, but wondering why it has taken such a long time to get the Agreement started. If we had done it six months after the Federation came into being that would have been only six-month retrospective legislation. This is three-year retrospective legislation. It is rather alarming.

§ Mr. Brooke
I must point out that this is not a question of the date of Federation but of the date of the Federal income tax system coming into operation. I am rather glad we have now a double 2111 taxation agreement, having myself some experience of the immense length of time sometimes occupied in negotiations when we are seeking these agreements with countries outside the Commonwealth.
The right hon. Gentleman the Member for Smethwick asked whether there were any major differences which had to be ironed out. There is only one difference, I think, of any importance, namely, the treatment of Government pensions.
The House may know that there are in some of our arrangements two different ways of treating government pensions for tax purposes. Sometimes we have agreed that the foreign country should be given the exclusive right to tax pensions paid by its Government even though the pensioner is resident in the United Kingdom. In other agreements we have insisted that when the pensioner is ordinarily resident in the United Kingdom, the Government pension which he receives should be charged with tax by the United Kingdom Government and not the paying Government.
In the three agreements which we are now supplanting there were differences of treatment in that particular respect. Clearly, it was desirable to iron those out, if I may use that expression, and this Agreement now provides for what will happen in regard to those Government pensioners.
The right hon. Member for West Bromwich (Mr. Dugdale)—and this was a part of his speech which was clearly in order—referred to the transfer of residence of a company from one territory to another. As he will, I think, be aware, the transfer of residence of a United Kingdom company to another country is not permitted under the Income Tax Acts except with the consent of the Treasury. Therefore, if any company has recently migrated from the United Kingdom to the Federation, it can only have done so with the consent of the Treasury.
I trust I have satisfied the House that this Agreement has been reasonably drawn up and that the negotiators have thought of all the questions which might arise and have sought so to frame the Agreement that scope for ambiguity or litigation will be reduced to a minimum. The important thing here—and I revert now to the question of replacing and terminating the former agreements—is 2112 that everybody liable to pay tax should be enabled to see exactly where he stands.

§ Mr. E. Fletcher
In the matter of pensions, where there has been some ironing out, would the Financial Secretary say whether any pensioner is worse off under this Order as a result of any such ironing out than he has been hitherto?

§ Mr. Brooke
No pensioner will be worse off, because the position of certain pensioners who might otherwise be rendered worse off is protected.