§ The Chancellor of the Exchequer (Mr. James Callaghan)
I propose to limit the circumstances in which we give relief for underlying tax, that is, the tax charged by an overseas Government on the profits of an overseas company out of which the dividend is paid and remitted to this country. I do not propose to disturb the present arrangement under which relief is given where a United Kingdom company owns 25 per cent. or more of the shares in an overseas company. But it would be 266 anomalous to continue to give relief in this way for overseas portfolio investment when a United Kingdom investor in a United Kingdom company has to pay tax in full on his dividends without any credit for the tax paid by the company on its profits. In many cases such relief is given at present under double taxation agreements, and we shall, of course, honour our obligations under such agreements.
My policy will be to renegotiate as soon as possible agreements which give this relief for portfolio investment in securities abroad and also to introduce legislation to withdraw the relief where we give it unilaterally. But I do not wish to deny the benefit of this relief to portfolio investment in the Commonwealth until we have seen what progress can be made in renegotiating our agreements; and the withdrawal will, therefore, only take effect from a date to be determined later.