§ Mr. Stephen Hastings (Mid-Bedfordshire)I beg to move Amendment No. 166, in page 38, line 40, at the end to insert:
(2) In applying the provisions of Schedules 16 and 17 to the Income Tax Act 1952, as subsequently amended, the following shall have effectThe point which I seek to make is not new. It was debated last year and on the Finance Bill in 1965, but it is a specific point. In those circumstances, I do not intend to go deeply into the merits of overseas investment as a whole, except to remark that I have tried, in the context of this matter, to study the Reddaway Report, which is an interim report and important in this connection, but I have found it so hedged about with qualifications as virtually to defy interpretation.
- (a) where a person possesses a source of foreign income in respect of which there is an excess of foreign tax, such excess shall be deemed to be foreign tax in respect of any other foreign income to which he is entitled for the same year assessment and be applied in relief of his United Kingdom tax liability in respect of that other foreign income;
- (b) in this section 'excess of foreign tax' shall mean that part of the foreign tax which cannot be allowed as a credit because the foreign tax exceeds the United Kingdom taxes applicable to the particular source of foreign income.
This is, in a sense, its value. It seems to show conclusively that one cannot quantify exactly the effects of overseas investment on the balance of payments, much less explain the reasons for overseas investment in purely statistical terms. Here one is concerned with a range of business judgments which are simply not susceptible to this kind of analysis. That was the effect which this Report had on me.
I turn to the specific matter which is raised in the Amendment. The object 244 of the Amendment is that foreign taxes paid in respect of all overseas income should be averaged for the purposes of double taxation relief so that where the foreign tax in respect of a particular source of income exceeds the United Kingdom tax payable on the same income, the excess can be credited against the United Kingdom tax payable on any other source of overseas income.
A simple example of what I mean is a United Kingdom company which receives dividends from, let us say, 100 units from investments in South Africa and Australia. The United Kingdom company would have paid tax in South Africa at about 35 per cent., leaving 5 per cent. upon which United Kingdom tax is levied, and in Australia the United Kingdom company would have paid about 50 per cent., leaving a surplus, if I can call it that, of about 10 per cent., for which the company would get no relief at all at the United Kingdom end.
The effect of my proposal would be that the United Kingdom company should be allowed to take both these blocks of dividends together—that is to say, 100 units in South Africa and 100 units in Australia—upon which it would have to pay United Kingdom tax at 80 per cent., but the credits, aggregated, 35 per cent. plus 50 per cent., would add up to 85 per cent. That is still an excess, but it would mean that the United Kingdom company would not have to pay tax on the 5 per cent. from the South African example.
I remind the Chief Secretary of the debate on this issue on the Finance Bill of 1965. On Report, my hon. Friend, the Member for Honiton (Mr. Emery) moved an Amendment which is substantially—in fact, almost exactly—the same as this. During his speech he drew attention to what the Financial Secretary had said in Committee on 22nd June, 1965, which was:
I want to make clear that I am not giving an undertaking that I will bring forward Amendments, but I shall be glad to consider the matter further.No Amendments were brought forward by the Government, but when he replied to that debate the Financial Secretary said:We do not rule out on principle legislating on this subject.The hon. and learned Gentleman continued to point out the difficulties which, 245 of course, were as obvious to my hon. Friend when he raised this matter two years ago as they are to me now. Nevertheless, the hon. and learned Gentleman did not deny that the issue was substantial and he finished his speech by saying that although the problems were involved,the Government have decided not to legislate on this matter this year but to look carefully into all the implications during the coming years."—[OFFICIAL REPORT, 12th July, 1965; Vol. 716, c. 220–2.]That meant, during the year 1966.I believe—my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) will probably confirm this—that last year there was another debate on an Opposition Amendment on the same matter and that again the Government said that they would consider it with a view to legislation. So there have been two debates on this matter and the time seems to have come when we should expect something concrete, and I hope that we shall hear from the Chief Secretary that the Government have now at last determined to grant us the point.
§ 11.0 p.m.
§ The United States tax system has been used as a precedent and as a justification by the Government for the major tax changes which they introduced two years ago, and that example has been frequently cited. Whether those tax changes are beneficial for this country or not, if the precedent is justified, it is reasonable and fair for us to adopt the facility which exists in the United States tax system for averaging foreign taxes, which is substantially the point of the Amendment.
§ This provision bears a relationship to the so-called overspill allowance. Two years ago, the Government introduced discriminatory fiscal measures against overseas investment and then brought in a form of allowances to last over a period of five years only. The argument is that if there is inequity—and the very existence of these overspill allowances implies that there is—then inequity cannot be remedied by temporary measures. The Amendment offers the Government a partial solution to their difficulties and embarrassment in this connection. This is the third time which we have debated this matter.
246§ In the circumstances, we should expect the Chief Secretary to regard the Amendment with sympathy and I hope that he will accept it.
§ Mr. John Biffen (Oswestry)My hon. Friend the Member for Mid-Bedfordshire (Mr. Hastings) has moved this Amendment with great moderation, and I want briefly to endorse what he has said. When the Corporation Tax was first created, in the White Paper, I think published in November, 1964, there was then no reference, as I recall, to the consequences which that tax was expected to have for overseas investment. It was largely argued along the lines that it would have the effect of encouraging retained profits and discouraging distributions. It was argued essentially in a domestic context.
Subsequently, these other arguments were adduced, that it would have these consequences upon overseas investment, but I suspect that that was an argument emanating more from the Treasury than some of the other advisers, who were at that time prominent in the counsel of the Government. There must be a case for reflecting as to whether the effect that this will have on overseas investment has been far harsher than anyone really foresaw at that point of time.
The uncertainty that the Government had has been very clearly underlined by the quotation which my hon. Friend has mentioned from the Treasury spokesmen on the two previous occasions when this has been debated. Although I fully recognise that one cannot easily discern a pattern in the general range of overseas taxation, there is plenty of evidence that many of the developing countries have very high rates of taxation on British enterprises operating in those countries.
If we are concerned about developing investment in those parts of the world normally referred to as developing countries, then in a very modest way, and I put it no higher than that, we can contribute to United Kingdom private investment by allowing the kind of averaging provision which my hon. Friend has mentioned, and I hope that this consideration will be borne in mind, along with the points raised by my hon. Friend when the Chief Secretary comes to answer the debate.
§ Mr. DiamondThe hon. Member for Mid-Bedfordshire (Mr. Hastings) raised 247 this matter with moderation, and he has been supported with the knowledge and persuasiveness of his hon. Friend the Member for Oswestry (Mr. Biffen). The hon. Member for Mid-Bedfordshire referred to the Reddaway Report and said that he had some difficulty in understanding what it was about, as it was so hedged with limitations. If I can help in a very general way, what the Reddaway Report says is that everything that we said about overseas investment is right, and everything that the Opposition said is wrong. That is a broad guide—that is the intelligent man's guide to the Report.
§ Mr. HastingsIf the right hon. Gentleman really thinks this is the conclusion of the Reddaway Report then he is just as fogged as I am.
§ Mr. DiamondI was merely offering it as a guide to the hon. Gentleman. It is on a more narrow point that the question of overseas investment arises. The hon. Gentleman next referred to the debates in 1965, with which I had happily provided myself.
I opened HANSARD to see what my hon. Friend the Financial Secretary said and I read from col. 1561. The first sentence was all that I read, and as the Committee will realise, having read that, I closed the book very sharply, because the first sentence read:
Mr. MacDermot: I rise at this early stage only because I find that all my efforts to staunch the flow of generosity on the part of the Treasury are of no avail."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1561.]It is not surprising that my right hon. Friend the Chancellor intervened very shortly afterwards to put the matter right. The hon. Gentleman gave me a very helpful example of the exact point which the Amendment seeks to meet, and of the exact principle which this Act does not seek to meet.The hon. Gentleman gave me an example not of avoidance of double taxation. The principle that this measure seeks to meet in this respect is the avoidance of double taxation. It does not seek to meet the entirely different principle that the hon. Gentleman propounded, namely, that the United Kingdom investor should in effect, be required to pay the lower of two taxes. If he pays the higher of two taxes, but does not pay twice over, the 248 point of paying double taxation is met and that is all we are considering.
The hon. Gentleman referred to Australia and the rate of 50 per cent. and the relief given had the result that tax borne on that income was 50 per cent. This was income earned in Australia by a resident company in Australia of which the shareholder—let us say the major shareholder—was an English resident company. I see no reason, and I expect that other Australian companies see no reason, why one particular Australian company should bear tax at less than 50 per cent. and the other Australian company should bear tax at 50 per cent.
As the hon. Gentleman will perceive, the effect of the legislation unamended is to give such relief that the double tax borne on the English company in respect of that income is no more than 50 per cent., just as much as in the other case it was no more than 40 per cent.—the higher of 35 and 40, as in this case it is the higher of 45 and 50. I am explaining why it is that the legislation is not intended to meet the point which the hon. Gentleman is making. Therefore, as there is an issue of principle, and so long as we understand each other, I do not think that I need to go over all the points which arise out of the Amendment.
It is certainly true, as the hon. Member for Oswestry (Mr. Biffen) said, that if this Amendment were to be accepted it would be an encouragement to British investors to invest in low tax countries abroad. But it is not intended to introduce that bias. In those circumstances, I gather that it is not the wish of the hon. Gentleman that we should rehearse all the points that have been adequately debated previously. There is really an essential difference of principle. I have explained what the hon. Gentleman's principle is. I have explained the Government's principle. In those circumstances, I cannot recommend the Committee to accept the Amendment.
§ Mr. Patrick Jenkin (Wanstead and Woodford)I can only say that the Chief Secretary's reply to the Amendment, which was moved in very persuasive terms by my hon. Friend the Member for Mid-Bedfordshire (Mr. Hastings), is disappointing in the extreme, because it was so much less forthcoming than the 249 replies on the same point raised in previous years.
I remember that last year, at about a quarter-to-four in the morning, as the cold grey light of day was beginning to come through the windows of the Chamber, I moved the Amendment to which my hon. Friend referred, and it was replied to by the Financial Secretary on 21st June, reported at column 534 of the OFFICIAL REPORT. Unlike the Chief Secretary tonight, who has attacked the matter on an issue of principle, the Financial Secretary on that occasion gave three reasons why he could not accept the Amendment.
I had argued it principally in relation to British banks operating overseas, though the Amendment was not so limited. He said that it was not right to single out one particular business, and I accept that that is right. He made the point that this would increase the incentive to invest in low-tax countries, and he also said that it would reduce the disincentive to invest in high-tax countries. Indeed, one is the other side of the same coin.
The Financial Secretary also referred to the now well-worn theme that it could lead to tax avoidance, but on that occasion he said:
I do not want to make too much of this."—[OFFICIAL REPORT, 21st June, 1966; Vol. 730, c. 534.]11.15 p.m.My hon. Friend has not sought special treatment for any trade. The matter is argued generally. Obviously, it affects a large number of businesses which operate in a number of countries overseas. Were we to raise the matter on the rather practical grounds of the Financial Secretary, we would be left with only the economic effect, namely, that this would have a marginal impact on overseas investment. Perhaps I may be allowed to say a word or two about that, because the Chief Secretary gave it as one of his reasons.
In 1965, the Financial Secretary admitted that we had a case. My hon. Friend has quoted from the Report stage debates, when the Financial Secretary indicated his view that there was substance in the case if means could be found of giving expression to it. The question which one must now ask is whether the impact on overseas invest- 250 ment—the encouragement to go to a low-tax country or the reduced disincentive to invest in a high-tax country—is now so great in relation to our total overseas investment that it cannot be tolerated. Are we reduced to such a pass that the marginal effect which might arise, which would be necessary to give rise to the justice which was then admitted, cannot be borne?
Nobody has ever disputed in relation to overseas investment that the short-term curbs could well be justified in a moment of balance of payment crisis as a means of temporarily staunching the flow of investment overseas. This has received qualified—I emphasise "qualified"—support from the Reddaway Report, to which my hon. Friend referred. It should be noted that unlike many commentators on this matter, I am quoting from the Reddaway Report and not from any of the handouts about it.
At page 131, the Reddaway Report states:
A restriction of direct investment overseas would, for a considerable time, make a contribution to the problem, but it does not follow that it is a wise policy: the most that one can do is to make the rather tautological remark that, if nothing else is considered feasible (or adequate without the restriction on direct investment overseas), then the policy may be better than the last resort—which is economic stagnation.I forbear from pointing out that we seem to have managed to get both from the Government.The whole tenor of the Report—I was astonished by what the Chief Secretary said in his brief reference to it—is that long-term curbs, restrictions and disincentives are harmful to the economic interests of the country. I will not read the full page, but perhaps I might read the two paragraphs which deal with this. I quote from page 130 of the Reddaway Report:
An average act of direct investment overseas will strengthen the future balance of payments on current account, even after deducting the interest payable on the overseas borrowing … by which, at least from the national point of view, such an act of investment is almost wholly financed. In consequence, a steady rate of direct investment overseas would, if maintained long enough, provide enough of an annual surplus on current account to finance the annual quota of new investment.Perhaps one of the most factual conclusions of the Report was that over the 251 period which it examined, from 1954 to 1965, that was exactly what happened: overseas investment was self-supporting.The Financial Secretary is not present, but I raised the question of long-term restrictions in the Budget debate. The Amendment seeks to modify in a small regard the long-term fiscal disincentives on investment. I raised the question of what the Reddaway Report showed. I used different words but with exactly the same meaning. In the Budget debate, the Financial Secretary said that
if, as a result of this Report, anybody has to swallow his words spoken two years ago, it is not anyone on this side."—[OFFICIAL REPORT, 13th April, 1967; Vol. 744, c. 1499.]The Chief Secretary echoed those words tonight when he said that it wholly bore out what the Government have been saying. That is not the conclusion of most of the responsible commentators on the matter.The Financial Times said on 29th March of this year:
… the Government can take little comfort from a report whose findings by implication condemn the approach adopted by Mr. Callaghan.The Economist said:Measured by the Reddaway yardstick, the indiscriminate and permanent tax disincentives to foreign direct investment written into the 1965 Finance Act seem to be folly.Those are remarks by the two principal commentators on the matter, and for the Government to claim that the Reddaway Report bears out their policy of long-term, permanent fiscal disincentives to overseas investment seems to be the height of folly.Now we have even the National Economic Development Council considering the Reddaway Report. The Times reported on 6th April:
Overseas investment is a good thing in the long term, the National Economic Development Council decided at its monthly meeting yesterday. But while they felt it was generally the right course for a country like Britain to take, Neddy members agreed that short-term limitations during a balance of payments crisis were unavoidable.But we are not discussing short-term limitations. We are discussing a long-term, built-in financial disincentive to overseas investment.252 The new dispensation of Corporation Tax and the limitation of double tax relief operates particularly harshly on those companies which have investments in a number of different countries. That is the situation which we are discussing. The Amendment undoubtedly would mitigate the harshness in allowing the taxation which is unrelieved from profits earned in low-tax countries to be relieved against the balance left from the high-tax countries. That would seem to be a perfectly reasonable proposal, but the Chief Secretary has told us that it is wholly contrary to every principle which has already been written into the taxation system. I hope that I do not misquote him. I understood him to say that this was not what the taxation system sought to do.
My hon. Friend the Member for Mid-Bedfordshire has pointed out very pertinently that the taxation system of the country which the Government purport to take as their model—the American system—does just that. If industry is having to compete in overseas countries with American industry, clearly it is competing subject perhaps to a minor but none the less significant disadvantage in that allowances available to their American competitors are not allowed to companies based in this country.
Indeed, the American practice has the advantage of recognising the reality of the situation, namely, that groups of companies operating in a large number of different countries are operating as one worldwide organisation. They do not look at a series of separate individual businesses, each in a separate compartment. They look at their worldwide operations as a whole. It is according to that test that they should be judged and according to that test that they should be taxed.
The Amendment would go some way to achieving that result. I am extremely disappointed that the Chief Secretary has resisted it in such uncompromising terms. I believe that my hon. Friend has a good case, and my advice to him is that, when the Question is put, he should leave the Amendment to be negatived and not seek to withdraw it. I believe that he has a good case.
§ Amendment negatived.
253§ Mr. Patrick JenkinI beg to move Amendment No. 134, in page 38, line 42, at the end to add:
(3) Paragraph 4(1) of Schedule 16 to the Finance Act 1965 (which defines the circumstances under which a company resident in the United Kingdom can claim relief for the underlying tax paid abroad by an overseas company paying dividends to the first-mentioned company) shall be amended by the insertion after the word 'which' of the words 'has acquired shares of the first-mentioned company at a cost of one million pounds or more or which'.This Amendment covers a rather different point. It seeks to widen the category of companies operating overseas which should be treated as a direct investment of a United Kingdom shareholder and not as a portfolio investment. Hitherto, the test of what is a direct, and what is a portfolio, investment has been the percentage of voting power in the overseas company, and the present rule is that to be a direct investment the United Kingdom company must hold at least 25 per cent. of the voting power in non-Commonwealth countries, or 10 per cent. in the case of Commonwealth countries and some of the countries with which we have double taxation treaties.The double taxation treaty system is intended—and I hope that I carry the Chief Secretary with me on this—to prevent, or, at any rate, to minimise, the situation in which income is subject to two taxes in two different countries. It is to stop the income being taxed twice over.
In the case of dividends moving from one country to another one has to consider two sorts of taxation in the country where the company is operating. There is the direct tax on the dividends, the so-called withholding tax, and there is also the tax which has been paid by the company itself in the country, the so-called underlying tax.
Until 1965 relief for the underlying tax as well as for the withholding tax was given in almost every case. It was only in respect of a few countries outside the Commonwealth with which we had no double taxation convention that no relief for underlying tax was given. The 1965 and 1966 Finance Acts made substantial changes to that position and substantially reduced the number of circumstances in which relief from underlying tax was given. In particular, they brought about the situation in which portfolio invest- 254 ments rarely, if ever, qualify for relief from underlying tax. Direct investment—the 25 per cent. or 10 per cent. test that I mentioned—still qualifies for the underlying tax.
The position, therefore, is that the distinction between direct and portfolio investment, having before 1965 been of relatively little importance—it arose only in the case of a very few countries, and those which were of comparatively minor significance from the point of view of United Kingdom investments overseas—is now relevant in virtually every country in which we have investments. It is, therefore, a question of critical importance to any company whether its investment in an overseas company is a direct or a portfolio investment, and as the law stands this is to be judged by the voting share test—25 per cent. or 10 per cent. according to the circumstances.
It is becoming apparent that this test is altogether too crude to judge so important a matter. It gives rise to great unfairness, and at times it gives rise to considerable anomalies. The justification for the distinction was given by the Financial Secretary during one of the lone debates that we had on the 1965 Finance Bill. On 16th June, the hon. and learned Gentleman gave two main reasons for this. The first was that there was a fiscal difference between a direct and a portfolio investment in that the direct investment was, as he put it, a subsidiary of the investing company.
The hon. and learned Gentleman said:
… the underlying tax that is paid by a subsidiary company—and applying the 25 per cent, test as to what is a subsidiary—is, in a sense, tax paid within the company sector and to grant the relief does not conflict with the principle of Corporation Tax by separating company taxation from the individual tax paid by the shareholder.That was the fiscal reason, and the hon. and learned Gentleman then told us the economic difference, in that direct investment can be presumed to bring greater returns to this country. He said:It is the trade investment which is likely to be more productive, and is designed to be productive of helping future trade between ourselves and the countries in which the investment is taking place."—[OFFICIAL REPORT, 16th June, 1965; Vol. 714, c. 574–5.]11.30 p.m.Therefore, the position is reached, on this explanation, where the question is: is this a trade investment, and is it in the 255 company sector? If there is to be a distinction, this must be the basis of any logic which underlies it. If it is in the company sector and is a trade investment it should be regarded as a direct investment and should qualify for relief from underlying tax.
Conversely, it ought not to be excluded merely because it fails to meet what is by any standard an arbitrary percentage test. If investment in a trade is a trade investment it can be a trade investment even if it is less than 25 per cent. or less than 10 per cent. One can well imagine investments which by their sheer size amount to trade investments. When the size of the investment and the amount of money involved goes above a certain limit it is unrealistic to regard it merely as a portfolio investment.
The Chief Secretary will ask what is the basis on which to work. What is the limit? I concede that it must be an arbitrary test, but it is no more arbitrary than the present test, and it is quite a logical proposition that by adopting the alternative of two arbitrary tests the ultimate result is less arbitrary than if only one had been used. I hope that I carry the Chief Secretary with me in this. That is a logical position, which is wholly consistent. To add another arbitrary test may well be an improvement.
The Amendment sets a figure of £1 million as the limit. I cannot conceive of any investment overseas which would be, strictly speaking, a portfolio investment where the investor could have put £1 million into it. Every investment made by a company overseas would be bound to be regarded by any normal test as a trade investment. One can argue that the figure should be lower. We were pressed to write in a figure of £100,000, but that would be too low, because there must be plenty of insurance companies and others with individual investments worth that or more.
On the Financial Secretary's own test it seems that the higher figure of £1 million must qualify. It must be in the company sector, because only a company would go in for a single holding of this size, and it must be of sufficient importance for the United Kingdom investor to put it into his own company accounts as a trade investment and not in any sense as a vehicle for the reserves of the 256 company, or some form of temporary saving.
The Amendment would exclude accretions from ploughed-back profits. It refers to the cost of acquisition. Where the cost of the acquisition of shares is more than £1 million, notwithstanding that it does not come up to the percentage test we consider it should be regarded as a trade investment and a direct investment and that underlying tax relief should be allowed.
This would avoid two serious anomalies. The first anomaly is that of the large investment in a tiny company being regarded as worth more, for the purposes of tax relief, than a much larger investment in a very large company—for instance, £25,000 invested in a £100,000 company in Japan would qualify for relief from underlying tax, but an investment of £4 million in a £20 million company in the Common Market would not. It is difficult to justify that sort of distinction on any basis of logic, since a 20 per cent. investment in a £25 million company—I quote again what the Financial Secretary said in column 575—
is likely to be more productive … of helping future trade between ourselves and the countries in which the investment is taking placethan, say, a 25 per cent. investment in a tiny company which is only 1/200th part the size. This is an illogical position, yet at present the tiny investment qualifies for relief and the large investment does not.The second anomaly is that the percentage test can result in a sudden and drastic change in tax treatment if the company's stake falls below the limit. If an overseas company were involved in a takeover in its own country and issued shares in exchange for assets, it might immediately reduce a United Kingdom shareholder's stake below 10 per cent. or 25 per cent., and there would be a drastic change in his tax treatment. It could also be reduced if our authorities forbade a United Kingdom company to participate in a rights issue by an overseas company. Yet the investment would be no less direct, no less a trade investment, no less "productive of helping future trade" between the two countries.
This additional, "size of investment," test would go far to remove the anomalies and would be consistent with the Financial Secretary's explanation two years ago. 257 When a company in which one has a 10 per cent. holding is regarded as substantial, there is no lack of logic in treating as the same case a company in which one has a large money holding, although it may be less than 10 per cent. The Amendment is consistent with what the Government have said since the Corporation Tax was introduced, and is very moderate because of the high figure which we have included. I hope that the Government will find it acceptable.
§ Mr. HastingsI support the Amendment, since I had a similar one on the Notice Paper myself. The object of this arbitrary precaution is to exclude so-called portfolio investments from relief from underlying tax, and this is ridiculous. A 25 to 30 per cent. holding in a sweet shop in Lusaka makes one entitled to the relief, whereas a 10 per cent. holding in a vast mining consortium does not. The control regulations in many countries make it difficult or even impossible for this sort of percentage of voting control to be acquired or maintained.
Second, it takes no account of what I would call consortium investment. The capital requirement of international consortia has grown immensely over recent years. The Mount Newman iron ore contract in Western Australia, for instance, is seeking capital of £100 million, and it is no exaggeration to say that one can invest abroad 25 million or more in an international consortium. A company in this country which did that could end up with a holding well below 25 per cent., but this sort of money surely calls for managerial participation.
My hon. Friend the Member for Wan-stead and Woodford (Mr. Patrick Jenkin) convincingly drew attention to the distinction between portfolio and what he called trade investment, and what I would call managerial investment. Investment on this scale must involve managerial participation. Any of the large concerns in this country involved in this sort of business would certainly confirm that. This scale of investment is well beyond the limit of what one might call portfolio investment. Voting control as a gauge between one kind of investment and another is a totally irrelevant criterion.
Any criterion which we put forward from this side is bound to be arbitrary 258 to a certain extent, but I am sure that the figure of £1 million—I think that I suggested dividends of £200,000 in my original Amendment—is at least more meaningful than this business of 25 per cent. of voting control.
I earnestly hope that the right hon. Gentleman will show himself a little more reasonable and understanding on this Amendment than he was on the last.
§ Mr. DiamondI can respond to the request for reasonableness made by the hon. Member for Mid-Bedfordshire (Mr. Hastings) because all the examples which he gave are covered in practice in a way which is satisfactory to him. He talked about 25 per cent. and then asked why it should not be 10 per cent., by comparison with the position in Lusaka. The answer is that, taking Lusaka or any other place in the Commonwealth, 10 per cent. is adequate there.
The hon. Gentleman then mentioned Western Australia, which is subject to a double taxation agreement and is not covered by the Clause, which deals only with unilateral relief. For Australia, therefore, as in other similar cases, relief is given at 10 per cent. The points which the hon. Gentleman made are being met in practice. What we are considering here is what we do in the case of unilateral relief, that is to say, where there is no agreement between the countries concerned as to what is to happen.
I now turn to the case put by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), who has saved me a lot of time—I am sure that the Committee will not want me to go into the matter at length—by correctly detailing the essential principle, which is: is it a trading investment or is it not? A trading investment is one in which one is concerned with a trade, and, where one is concerned with a trade, one wants to participate in the trade. One wants one's rights protected, and one takes care to see that one has, normally, such a percentage as ensures that one has reasonable control of the situation.
Such a figure is 25 per cent. In fact, that is low for securing control. To be absolutely sure of control, one would like to see a little more than 25 per cent., if one is investing with a view to participating in trading and not in a purely financial investment, even though the rest 259 may be spread among a number of small shareholders. However, to meet this point, the Bill provides for a rather low figure, namely, 25 per cent.
The proposal now is that we depart from that and say that, because the investment is large—I admit that £1 million is a large investment—its nature must be coloured by its very size. That is the proposition. I understand it. I do not accept it. Mostly, it would be likely to be so; generally speaking, £1 million would represent a substantial proportion—25 per cent. or 10 per cent. in Commonwealth cases—but I do not accept that sheer size would determine the quality of the investment or the mind of the investor.
It is quite possible for £1 million to be a pure portfolio investment, a financial transaction. Equally, it is quite possible to have £100 as a method of carrying on a trade jointly with others.
§ Mr. Patrick JenkinThe right hon. Gentleman says it is quite possible. Has he ever heard of one?
§ Mr. DiamondI do not know what the hon. Gentleman is now saying. If there is no case in which £1 million is not a trading investment and is not in any sense concerned with control, there is nothing to consider. The Amendment is not necessary. But, if it is the case that there are investors, individual investors such as a unit trust, with £1 million to invest in one very large company, so large that £1 million represents less than 25 per cent. of it, I still say that it is in the nature of a financial investment and not in the nature of carrying on of trade. I cannot, therefore, recommend acceptance of the Amendment.
§ Amendment negatived.
§ Clause ordered to stand part of the Bill.
§ Clause 35 ordered to stand part of the Bill.