INCOME TAX (NON-RESIDENTS) (Hansard, 18 March 1968)

§ The Financial Secretary to the Treasury (Mr. Harold Lever)
I beg to move, That the Non-Residents' Transitional Relief from Income Tax on Dividends (Extension of Period) Order 1968, a draft of which was laid before this House on 4th March, be approved. I ought to say a word or two in explanation, as I know that there is an avid interest in the details of these proposals, especially among right hon. and hon. Gentlemen opposite.
In essence, they are simple. When we changed over, by a decision of the House, from the old Income Tax system to the Corporation Tax in 1965, it became necessary to deal with the Double Taxation Agreements which we have with about 60 different countries.
Our then existing Double Taxation Agreements were apt for the previous Income Tax system but needed amendment to cope with the additional arrangements made in the 1965 Act. Sections 31 and 32 of the Finance Act, 1966, contained provisions to cover certain questions, the first, what are now familiarly called "mirror image" dividends, and the second, tax on interest and royalties paid and received by residents of countries with whom we have Double Taxation Agreements.
It has not been possible to renegotiate all the 60 agreements—I think there are 60—covering this area. In the meantime, Sections 31 and 32 of the 1966 Act provide that there should be interim provisions which continue in force broadly the arrangements of the old tax system, adapted to give interim relief, while the new one and the Orders relating to it for double taxation are renegotiated. This section needs to be extended by one year to give further time for the renegotiation of these treaties. In all, ten of these double taxation treaties have been negotiate so far. Some have been ratified. Some have not yet been ratified. It is obviously quite a slow process and we provide in these Orders for another twelve months for these double taxation agreements to reach their conclusion and to be ratified. It seems to make sense. It is required for the fair treatment of people regarding dividends, interest and royalties. Therefore, I hope that the House will see fit to approve this interim 172 Measure arising from the change in our taxation laws in 1965.

§ Mr. Michael Alison (Barkston Ash)
Very briefly, will the Financial Secretary elaborate a little more for my benefit, if for no one else's. I am a comparative novice in this subject, but I nevertheless want to gain further enlightenment.
The Financial Secretary referred to 60 possible renegatiated double taxation agreements. Could he explain the relationship between the figure of 60 and the agreement referred to in Schedule 9 to the 1966 Act? Are those the agreements to which the transitional arrangements apply or are they simply the first 10 of the 60 to which he referred earlier, and are we, therefore, to expect a continuation of this sort of reduction of the outstanding figure?
I want to go into a little more detail for the purposes of clarification, because this will be the third year in which these transitional provisions are to apply. They applied in 1966–67 and 1967–68 by reference to the 1966 Finance Act, and they are now to be extended in 1968–69. It therefore looks as though these so-called transitional arrangements will never end up in a state of permanency or definitive agreements so that transitional arrangements will no longer be necessary.
I do not press the Financial Secretary necessarily to end transitional arrangements and finalise the procedure of renewing the transitional powers in a definitive series of permanent agreements, because I am under the impression—no doubt he will correct me if I am wrong—that in many ways we could be better off with the continuation of these transitional provisions without a definitive agreement of the kind, for example, that we got in the double taxation agreement with the United States, to which, therefore, transitional procedures no longer apply. We may be better off under these transitional procedures than under the final definitive double taxation agreements as renegotiated following on the introduction of Corporation Tax and so on.

§ Mr. Speaker
We cannot go into final definitive agreements, which the hon. Gentleman either wants or does not want, on this Motion.

§ Mr. Alison
I merely make that point. I hope that the Financial Secretary will tell us whether it is his purpose to perpetuate the situation of transitional procedures, whether he is pressing all the time to secure definitive final agreements or whether he rather likes to hold on to these transitional powers which he has.
It seems, for example, that Section 32—the special facilities given for disallowing these interests or making it possible to set off these interests and royalty payments against profits earned—is a provision which applies in those favoured cases whether or not a definitive double taxation agreement has been negotiated. There seems, therefore, in many ways no incentive built into the Act, particularly in Section 32, to reach definitive agreements with a second or third Power, because the special concession applies, as far as I can see, whether or not there is a renegotiated double taxation agreement.
I hope that the Financial Secretary will be able to tell us, by reference, for example, to the results of the American Double Taxation Agreement, which seems to result unquestionably in a less favourable position vis-à-vis the Revenue than that which existed before—and my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), discussing the original Agreement with the United States—

§ Mr. Speaker
Order. I hope that the hon. Gentleman will take note of what the Chair says. We are discussing simply whether or not this relief shall be extended for one year.

§ Mr. Alison
I apologise if I am straying from the point, Mr. Speaker. I hope that the Financial Secretary will be able to tell us whether it is his policy to go on maintaining a state of limbo with a number of Powers, and operate on the basis of transitional arrangements, for which this is the third year, or whether he really intends to draw this ultimately to a conclusion by a greater zeal in finalising permanent arrangements with foreign Powers. This is a matter of some concern, Mr. Speaker—

§ Mr. Speaker
I hope that the hon. Gentleman understands. I am not concerned with whether it is a matter of 174 concern, but with whether it is a matter that can be brought within the purview of this debate.

§ Mr. Alison
Yes, I appreciate that, Mr. Speaker. I am trying to ascertain from the Financial Secretary whether the powers he seeks under the Orders are likely to crop up regularly in the future or whether we have here a sort of diminishing situation, one which will face us decreasingly in the future, because he will negotiate specific arrangements which will make such Orders unnecessary. It is a matter of concern, because in many ways these arrangements could be more advantageous to the Revenue than the procedure which might result in transitional Orders no longer being necessary.

§ Mr. Lever
With the leave of the House, I will answer briefly, and with Ministerial detailed attention to the rules of order, the points raised by the hon. Member for Barkston Ash (Mr. Alison).
The hon. Gentleman asked whether the Order applies to the 10—or, I think, the 13—Agreements so far negotiated, or to the 60 potential agreements. The answer is that it applies to the whole 60 agreements. When the Agreements have been not merely renegotiated but ratified by everyone concerned, we will bring the system to an end.
The hon. Gentleman says that the continuation of the existing system of temporary interim relief is in some cases more attractive to the British Revenue than will be the new negotiated agreements. That is no argument for keeping in existence an interim system which would not be acceptable indefinitely to other countries which, I assume, can make the arithmetical calculations which the hon. Gentleman has made and, if he is right, may come to the same conclusion as he has, in which case they would press on us to renegotiate the Agreements. The sensible thing is to bring all the Agreements up to date. We are doing that as fast as we can, and that is all that the Order does.
Much as I should like to, I am not able to engage in debate on the consequences of the Anglo-American Double Taxation Agreement, although I have 175 debated with the hon. Member for Wan-stead and Woodford (Mr. Patrick Jenkin) on that subject. The simple object of this Order is to preserve in force the relief granted to taxpayers. This is the Revenue in its generous aspect.—[Laughter.]—I do not say that the Revenue is always to be seen in this aspect. The object of the Order is to continue in force the relief temporarily required until we have renegotiated the double taxation agreements which the 1965 Act makes it specially necessary should be brought up-to-date.
176 I hope that that reply will satisfy the hon. Gentleman, and that the House will think fit to give the extension we seek.