(1) Where an assurance company having its head office in the United Kingdom carries on business in the Republic of Ireland, and under provisions of the law of that country corresponding with section twenty-four of the Finance Act, 1956, exemption from income tax is allowable in respect of income from investments and deposits referable to pension annuity business, section four hundred and twenty-nine of the Income Tax Act, 1952 (under which income from investments of the foreign life assurance fund of an assurance company is treated for income tax purposes as if the company were not ordinarily resident in the United Kingdom), shall apply in relation to the income as if paragraph 3 of Part III of the Eighteenth Schedule to that Act (which excludes from foreign life assurance business any business transacted in the Republic of Ireland) did not have effect.
(2) Sub-paragraph (1) of paragraph 2 of Part III of the said Eighteenth Schedule (which charges tax under Case IV or Case V of Schedule D. on profits or gains arising in the Republic of Ireland, on the full amount of the income arising in the year of assessment, whether remitted to the United Kingdom or not) shall have effect subject to the foregoing subsection.—[Mr. Simon]
§ Brought up, and read the First time.
§ The Financial Secretary to the Treasury (Mr. J. E. S. Simon)
I beg to move, That the Clause be read a Second time.
This new Clause is designed to solve a taxation difficulty which has been encountered, as a result of recent Irish legislation, by United Kingdom life assurance companies transacting certain types of life business in the Republic of Ireland. The difficulty arises from the Republic's 1958 Finance Act, which gave exemption from tax on the part of an assurance company's invested income referable to what is called the "pension annuity business". Their legislation corresponds exactly to similar provisions in our Finance Act of 1956, which the 1124 Committee will remember. The "pension annuity business ", broadly speaking, is, first, contracts with approved superannuation funds set up by employers for their employees, and, secondly, approved retirement annuity contracts or trust schemes for self-employed persons and persons in non-pensionable employment. What the Irish legislation does, just as ours does, is to give exemption from tax on income from that business.
A complication has arisen owing to the unique nature of the Double Taxation Agreement between this country and Ireland. Uniquely, in that Double Taxation Agreement, the income is not taxed in the country of origin, but is taxed in the country of receipt. That means, therefore, that the United Kingdom life offices doing business in Ireland do not get any benefit from the exemption given by the Irish legislation, whereas their competitors, foreign companies with offices set up there, do get such an exemption. On the contrary, the United Kingdom life offices are taxed in this country on their receipts, and, therefore, operate at a competitive disadvantage.
Their case has been represented to my right hon. Friend, who thinks that it is well-founded and that a comparatively simple solution can be found. It can be found by slightly extending the scope of relief from Income Tax which is already available—that is, under Section 429 of the Income Tax Act, 1952—in respect of the income of the foreign life assurance fund of a United Kingdom life assurance company. The foreign life assurance fund means, in effect, the invested reserves which a company holds as cover for its liability under life assurance and annuity contracts granted to overseas policy holders by overseas branches and agencies; and the investment income from such a fund is free from United Kingdom tax to the extent that it is not remitted to this country or is obtained from the type of British Government security which pays tax-free interest to non-residents.
At present, transactions in the Irish Republic are excluded from consideration in reckoning the tax relief under that provision. Therefore, it seems to us that an apt solution to the difficulty is to allow the pension annuity business done in the Republic of Ireland, but not other business done there, to be 1125 included in determining the amount of overseas business which is to count towards establishing how much United Kingdom tax relief is available for the investment income of such a company's foreign life assurance fund.
To do that is in line with the original plan of my right hon. Friend, which was to preserve the competitive position of overseas branches of United Kingdom life assurance companies. The cost is probably less than a quarter of a million pounds, and I commend the new Clause to the Committee.
§ Mr. Gordon Walker (Smethwick)
The only part of the right hon. and learned Gentleman's lucid explanation which I could not follow is why the foreign life assurance funds were ever excluded from benefit in the case of the Republic of Ireland. It is, after all, for the purpose of companies operating in foreign countries. Was it done as the result of some administrative decision, or was it a quite unintentional consequence of a Statute which we have already passed?
§ Question put and agreed to.
§ Clause read a Second time and added to the Bill.