HC Deb 22 February 1966 vol 725 cc205-7
5. Mr. Hugh Fraser

asked the Chancellor of the Exchequer whether, in his negotiations of further double taxation agreements, he will avoid using as a model his recent agreement with the United States of America whereby the United States revenue will, on average, take from the British investor and company 51.9 per cent. of distributed profits, whereas the British revenue will take only 44.5 per cent. from American investors in this country; and whether he will make a statement.

Mr. Callaghan

In negotiating double taxation agreements there are many factors to be taken into account not all of which are limited to the immediate taxation effects. Each case will be treated on its merits, having regard to the model treaty of the Organisation for Economic Co-operation and Development.

Mr. Fraser

Will the right hon. Gentleman answer three questions? First, has this treaty been signed? Secondly, will he agree that whereas in the past we have taken £56 for every £100 of American profit earned here, we now take £45, and further that this precedent will have an adverse effect in negotiating treaties with other States for the protection of British shareholders? Finally, will he agree that this will cost the Revenue £10 million this year and a very considerable loss of dollar exchange?

Mr. Callaghan

I think that that is a rather loaded way of putting a very difficult series of propositions. The treaty has not technically been signed. The Americans and ourselves have reached heads of agreement which were made public for the convenience of those who wish to know about these matters. As regards the changes in deductions, I would not care to accept the right hon. Gentleman's figures quite in the way he put them. I think that he is over-stating the amount deducted initially. The amount to be deducted will depend partly on the rate of Corporation Tax. Whether it will have an adverse effect in negotiating treaties with other countries I do not know, but I do not think that it necessarily will. It is our aim to follow the O.E.C.D. convention, and indeed I have been pressed from the right hon. Gentleman's side of the House so to do. As for the cost to the balance of payments, it is impossible for the right hon. Gentleman or for any one else to quantify that. It depends on the amount of inward investment which flows from the fact that our tax rate is likely to be lower than that of the Americans.

Mr. Speaker

Order. Long questions produce long answers.

Mr. Iain Macleod

Will the right hon. Gentleman say whether he does or does not accept the calculation which is made in the original Question on the Order Paper? If he does, will he explain why he has made such a bad bargain on behalf of this country?

Mr. Callaghan

Mr. Speaker, I hope you will agree that I did not waste any words in replying to the long question.

These figures are correct as stated here, but I warn the right hon. Gentleman against simple arithmetic. Not all these issues are susceptible to that kind of treatment.

Mr. Fraser

In view of the totally unsatisfactory nature of the reply, and in view of the abject—[Interruption.]—I will raise the matter—

Mr. Speaker

Order. The right hon. Gentleman must give notice in the conventional way.