INCOME TAX (ANGLO-SWEDISH AGREEMENT) (Hansard, 1 December 1960)

§ The Financial Secretary to the Treasury (Sir Edward Boyle)
I beg to move,
8.8 p.m. That an humble Address be presented to Her Majesty, praying that, on the ratification by the Government of the Kingdom of Sweden of the Convention set out in the Schedule to the Order entitled the Double Taxation Relief (Taxes on Income) (Sweden) Order, 1960, a draft of which was laid before this House on 8th November, an Order may be made in the form of that draft. The double taxation Agreement with Sweden is intended to replace the existing Agreement between the United Kingdom and Sweden which was signed on 30th March, 1949. Whereas, a few moments ago, we were dealing with the first Order made in agreement with Italy, this is a new second Order made with Sweden. It has one important advantage. It is somewhat more extensive in scope than the earlier Agreement of eleven years ago, in particular because it provides that the Swedish communal Income Tax is to be included among the Swedish taxes to which the Order should apply.
We have also taken the opportunity to include some articles in a modified form to bring them into line with articles which the Council of the O.E.E.C. recommended member countries to adopt when revising existing conventions. It makes only minor changes in the existing Agreement, generally in line with the Agreements we have made since 1945.

§ Sir Frank Soskice (Newport)
As the Minister has said, the Order that we are now considering relates to the Swedish communal Income Tax. I think that the Minister will be able to confirm that in some respects there is a departure from the norm in this case. In general, I think that the view has been taken in the formulation of these double taxation Agreements that taxes imposed by a constituent entity of a country are not an appropriate subject for double taxation Agreements.
Am I right in thinking that there must be some special consideration applicable in the present case to justify a departure from the normal approach that subordinate taxation, if I may so put it, is not included? I should be grateful if 679 the hon. Gentleman would tell us whether that is so, and what it is. I presume that it is because the amount of revenue which accrues to the Swedish Treasury from the local taxation system bears a very substantial proportion to the total revenue which comes in by way of taxes to the Swedish Treasury. That, I should have thought, was the principal reason.
I notice also that the Agreement relates to Swedish capital tax. Apparently, Sweden has not got a capital gains tax. I think that it has some sort of graduated tax on the total amount of capital possessions of an individual and imposes a yearly tax upon that total capital possession. I should like to know if that is the reason for the provision in this Agreement relating to Swedish capital tax. I should also like to know from the Minister how that is to operate in view of the fact that we have no equivalent capital tax in this country, nor a capital gains tax, our nearest approach in this respect being Estate Duty.

§ Sir E. Boyle
I speak again by leave of the House to answer the point made by the right hon. and learned Member. It seems strange that even for a short time, we should discuss a capital tax without the presence of the hon. Member for Gloucester (Mr. Diamond). The capital tax was included in the 1949 Agreement and is not brought in for the first time under the present Agreement. It is an annual progressive tax in Sweden based on the possession or ownership of capital. I am told that capital up to a certain point is tax free and thereafter the annual capital charge operates from a rate just above 1 per cent. and just under 2 per cent.
As under the existing 1949 Agreement there will not be any credit relief given for these taxes against United Kingdom taxes. Such relief from those taxes as is due under the Agreement will have to be given wholly by Sweden. In a 680 sense this is a one-sided aspect of both double taxation Agreements.
As to the interesting point about the communal tax, it is true that, as the right hon. and learned Member said, we have always taken the view, which I think has been generally accepted throughout the world, that one should not allow, in double taxation Agreements, for taxes levied by subsidiary units of foreign States. On the other hand, it seems quite clear that Swedish local taxes, like those in Norway, are used to meet expenditure which in this country would be met by the Exchequer. It ill becomes any of us in any part of the world to be doctrinaire about where such taxes begin and end.
When one thinks of the general grant and the relation between central taxes and rates in this country, which is our normal practice for all kinds of reasons, it seems right to include these taxes, even though administered by different authorities, if they are used to meet expenditure which would be met here by the Exchequer. Considered under this head, it seems that the Swedish communal tax qualifies, and the Royal Commission on the Taxation of Profits and Income recommended that The test of recognition for double taxation purposes should depend solely on the nature of the tax and not upon the status of the authority imposing and administering it. I think that this is perfectly within that definition, and it is common sense to have brought this communal tax within the scope of this Order.