DOUBLE TAXATION RELIEF (TRINIDAD AND TOBAGO) (Hansard, 26 February 1970)

§ The Financial Secretary to the Treasury (Mr. Dick Taverne)
I beg to move, That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Trinidad and Tobago) Order 1970 be made in the form of the draft laid before this House on 9th February. The double taxation protocol with Trinidad and Tobago, which is before the House, in the Order, makes certain amendments to the existing double taxation agreement signed in December, 1966.
First, the maximum withholding tax which can normally be levied in the source country on dividends, interest and royalties is reduced by the protocol. The new withholding rates are 10 per cent. for direct investment dividends, 20 per cent. for portfolio dividends, 10 per cent. for interest and film royalties, and 5 per cent. for patent royalties.
Second, the protocol provides that the United Kingdom will give credit for tax which would have been payable in Trinidad and Tobago but for certain tax reliefs granted there to encourage development. This provision gives matching credit for tax spared in Trinidad and Tobago.
I hope that the Order will meet with the approval of the House. I shall be glad to try to answer any points hon. Members may wish to raise.

§ Mr. John Nott (St. Ives)
It is a pleasure for me to be able to assist my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), who has borne the main burden from this side of the House of debating similar Orders, often very late into the night. I believe that it has been called the night shift. Financial Secretaries come and go—I am glad to see a former Financial Secretary, the Paymaster-General, present but my hon. Friend goes on for ever, with the intellectual stamina and mastery of technical detail for which he is justly acknowledged. I am sure that after participating in about 40 debates he is glad to see someone to help him out in this not particularly crowded House.
1522 When the 1966 Finance Act necessitated the renegotiation of about 60 different tax treaties, I do not think that it was envisaged that some of them, like our arrangements with Trinidad and Tobago, would come round quite so quickly for the second time. Although I welcome most of the changes made in the Order, it makes me wonder whether the process of formalising the changes necessitated by the 1966 Finance Act will ever be completed. The post-1966 arrangements made with Trinidad and Tobago were debated here on 6th March, 1967, and now we already have the first change in them before we have even completed the initial agreements with quite a number of other countries.
My remarks will be very brief, as the Order does not raise any new or controversial principles. There are, however, one or two details on which the hon. and learned Gentleman might be able further to enlighten the House.
First, we notice that the British Government have agreed to give matching credit in this country to tax spared under the pioneer industry legislation of Trinidad and Tobago. As far as I am aware, we have not been over-generous with this type of provision for other countries, and it is only in the Singapore agreement that we have recently had comparable arrangements. There may be one or two other countries which benefit from similar provisions and perhaps the Financial Secretary could inform us of the position.
I do not know the West Indies well and I have never been to Trinidad and Tobago, but I am glad that our longstanding friendship with those islands should lead us to give this modest assistance under the order.
The pioneer legislation to which Article 7 relates gives ground for optimism, because although Trinidad and Tobago, with a population of about 1 million people, has among the highest per capita incomes in the region, I believe that unemployment is about 15 per cent. and probably double that for school-leavers. Thus I hope that this Order, which gives certain benefits to the tyre manufacturing industry, for example, will attract other industrial investment along the lines of the multi-million dollar Dunlop tyre factory in the island.
1523 I notice from reading the debates on the previous Order on 6th March, 1967 that my hon. Friend the Member for Wanstead and Woodford asked why it was not possible to introduce these matching credit provisions for Trinidad and Tobago. The then Financial Secretary replied that: The reason for the different treatment here"— different from that given to Singapore— is that this was an agreed provision and a necessary provision in order to get a balance for the whole of the tax agreement"— [OFFICIAL REPORT, 6th March, 1967; Vol. 742, c. 963–4.] I am not clear what has happened to change the circumstances and allow this article now when it proved impossible at the time of the 1966 agreement.
Can the Financial Secretary say what degree of direct and portfolio investment we hold in the industries and activities listed in Article 7? He may not have the specific figure but I believe that in 1969 some 33 new factories started production under this pioneer industry legislation, involving investment in Trinidad and Tobago of about 6.7 million Trinidad and Tobago dollars. I ask this because it means that the Exchequer will recoup slightly less revenue than would otherwise be the case had this matching credit not been granted.
No one would wish to carp at this but it would be interesting to know, roughly, the likely estimate of cost on the basis that the benefit of this concession will now go to the investing taxpayer rather than to the Exchequer.
The Financial Secretary referred to the reductions in withholding tax on dividends, interests and royalties for both direct and portfolio investment. They are on a reciprocal basis and should encourage greater investment by this country in Trinidad and Tobago. I notice that the reductions from 15 per cent. to 10 per cent. on dividends and interest and from 25 per cent. to 20 per cent. on portfolio investment are uniform. But there is a discrepancy with the royalties, and this is the only other specific question that I have. While there has been a major reduction from 15 per cent. to 5 per cent. with the patent royalties, so far as film royalties go the withholding tax 1524 has only been reduced to 10 per cent. I believe that under the previous agreement all royalties were at 15 per cent. Is this because the film industry occupies some special position in the Trinidad economy, because I cannot think of any other valid reason for making this distinction for the first time? I do not believe that it is a reasonable one.
I am tempted to ask why the definition of direct investment should be taken as 25 per cent. or a larger stake, but if I did so I might be treading dangerously near to the bounds of the rules of order. If the Financial Secretary can answer these few points I see no reason why we should not agree to this Order without further delay.

§ Mr. Taverne
With the leave of the House, perhaps I could answer such of the points raised by the hon. Member for St. Ives (Mr. Nott) as I am in a position to answer. First, how many other agreements do we have in which we give this kind of matching credit for taxes spared? We do this in the case of Pakistan, Malta, Israel, Malaysia, Singapore, Portugal and Jamaica. Like him, I think that it is something to be welcomed.
The hon. Member asked what the amount of portfolio investment was that would benefit from the tax-spared provisions in the pioneer industry legislation. I cannot give that answer, nor do I think it is very relevant, because the real question is how far investment will be attracted that otherwise would not be attracted. This, of course, is what will constitute the real gain to Trinidad. I cannot tell how much the cost is one cannot see these things in terms of balance of cost in exact figures. It is generally advantageous to business. We gain from the withholding rates, and we lose revenue from the matching credit provisions.
The reason why this was not included in the agreement in 1966 is that we had reached a position in which only part of the agreement could be arrived at to our mutual satisfaction. Since then, fortunately, we have been able to agree on the present protocol with further concessions on both sides.
The last question I was asked was about the differential rate for film royalties. The short answer is that it takes two to make an agreement. There are 1525 other agreements in which film royalties receive less favourable terms than other royalties. I cannot state specifically why it is so in each case, but it is part of the agreement on both sides. The reduced withholding of tax on royalties is a benefit to us. One has to balance one against the other.
I am glad that in general the hon. Member for St. Ives welcomes the Order, and I hope it will commend itself generally to the House.