DOUBLE TAXATION RELIEF (ISRAEL) (Hansard, 5 December 1962)

§ Sir Frank Soskice (Newport)
This agreement appears to me to be in common form and I do not think that I have any questions which I should like to ask except the usual one, namely, in what loss does this involve the Treasury? I should be grateful if we could be told.

§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
This is not the time, and it is not the night, when an hon. Member who is conscious of the feelings of fellow Members would wish to detain them for more than a very short time, and that refers not only to those hon. Members who are present, but also to the devoted servants of the House who have to stay here as long as we do.
However, there is one point in connection with this agreement which, unlike 1454 the right hon. and learned Member for Newport (Sir F. Soskice), I do not find in common form, because it embodies in Article XVIII a provision which, I think, is new in any double taxation agreement of which I am aware in that it gives effect under English law to certain tax sparing arrangements made by the Israeli Government to encourage investment. It puts into practice a pledge given by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) in his Budget of 1961, and it is dated back to 6th April, 1961.
I should like to say a word of genuine gratitude for the fact that this principle, which is new in British taxation, should have been accepted by my right hon. and learned Friend and now incorporated in this agreement. The Israeli Government attach enormous importance to the encouragement of investment in approved enterprises which are granted tax exemptions for such investment. It is quite foreign to the British tax collector that any investment should be free of tax. However, the concession has been made that the tax-saving element in any dividend received from Israeli enterprises of this sort shall themselves be free of British taxation.
This is a very important concession and I sincerely thank my right hon. and learned Friend Who introduced it and my hon. Friend who negotiated the agreement.

§ The Financial Secretary to the Treasury (Mr. Anthony Barber)
I think that I can deal with the point raised by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) at the same time as I answer the right hon. and learned Member for Newport (Sir F. Soskice), who asked me the single question: what will the loss of revenue be as a result of the ratification of the Agreement? This is not a case like the last Order, where the Agreement replaces an arrangement for unilateral relief under Section 348 of the 1952 Act, because in this case there was an arrangement already operative with Palestine which was made in 1947 and which was also by various means with which I will not trouble the House made operative with Israel after 1950.
The main change from the point of view of the United Kingdom Exchequer 1455 is the provisions for giving relief in respect of taxes spared set out in Article XVIII, to which my hon. Friend referred. It is these provisions which account for the main additional cost to the Exchequer. Although it is difficult to be precise in these matters, the additional cost will amount to something in the region of £¼ million a year. I will not weary the House at this time of night with details, but one has to consider the agreement as a whole and there are other important items set out in the Agreement which will be of great benefit to the United Kingdom.
There is only one other point I would make to my hon. Friend, so that there shall be no misunderstanding. This is not the first occasion on which relief for taxes spared has been applied. It was applied also in the Agreement which we made with Pakistan and in the Agreement which we made with Malta.

§ Sir H. d'Avigdor-Goldsmid
The cost of £¼ million to the Exchequer is in no sense the real cost. It represents taxes which the Israel Government are not charging themselves and which, if the Agreement had not come into force, the Exchequer would have levied from the British taxpayer, thus nullifying the encouragement to investment under the Israeli law. Is not this a correct statement?

§ Mr. Barber
Under the provisions of this Agreement relief from United Kingdom taxation will be given to the extent of about £¼ million which otherwise would not have been given if the Agreement had not be approved by the House.